Although often described as a declining industry, oil continues to attract significant media attention. With tensions escalating in the Middle East, the commodity has once again captured investors’ interest. Brent crude prices have been highly volatile over the past month, briefly approaching $80 per barrel, a level not seen since January. Notably, this price movement occurred without any closure to the Strait of Hormuz, which handles around 20% of the world’s oil shipments. According to analysts at Citigroup, oil prices could rise as high as $90 per barrel if the strait were to close.
Rising oil prices contribute to cost-push inflation across industries, affecting both businesses and consumers. In the United States, the Federal Reserve has estimated that every $10 increase in the price of oil adds approximately 0.2 percentage points to overall inflation. Similarly, in the eurozone, a 10% rise in oil prices (in Euro terms) is estimated to increase inflation by between 0.1 and 0.2 percentage points.
Despite the growth of renewable energy, ExxonMobil projects that oil will still account for around 30% of the world’s energy mix by 2050, only a modest decline from 32% in 2024, according to BlueNord ASA. While oil as a commodity will likely remain relevant for the foreseeable future, investor sentiment towards oil producers has shifted. Concerns over stranded assets and increasingly stringent ESG-related regulations have discouraged investment in the sector, placing downward pressure on share prices. Major oil producers such as Chevron and ExxonMobil have underperformed relative to the broader market: over the past decade, the S&P 500 has gained 242%, while Chevron and ExxonMobil have returned 118% and 91%, respectively.
At High Street, we do not have any direct exposure to oil as a commodity or to any producers. Our investment strategy is centred on identifying companies with durable, long-term competitive advantages. We seek businesses that demonstrate sustainability, resilience, and the ability to compound value over time. That said, oil is expected to remain an important economic driver and focal point during geopolitical uncertainties.
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