Big Oil bets big on extended life for fossil fuels

Today’s top stories

• The US struck two facilities in eastern Syria that it identified as linked to Iran-backed militias, following attacks on American forces in the region in recent weeks. Full coverage of the Israel-Hamas war.

• JPMorgan chief Jamie Dimon will sell 1mn shares in the bank next year, the first time he has reduced his stake since joining nearly two decades ago, raising questions about how long Wall Street’s longest-serving boss intends to stay on. His rival at Morgan Stanley, James Gorman, is stepping down at the end of the year, to be replaced by Ted Pick, who currently runs investment banking and trading.

• The “core” personal consumption expenditure index, an inflation measure closely watched by the US Federal Reserve, fell to an annualised 3.7 per cent in September, the lowest in two years, easing pressure on the central bank to raise rates next week. The US economy grew faster than expected in the third quarter with a 4.9 per cent annualised GDP increase, its quickest pace in almost two years.

For up-to-the-minute news updates, visit our live blog

Good evening.

Has Big Oil in the US got its swagger back?

It’s tempting to believe so, in a week where the most significant industry consolidation in two decades gathered pace and the supermajors continued to enjoy a lift from rising crude prices.

As we report today, ExxonMobil, which fired the starting gun on the current M&A race with its $60bn purchase of Pioneer two weeks ago, is still on the hunt for deals, or at least those where “one plus one equals three”.

Exxon also reported third-quarter earnings had risen to $9.1bn, up from $7.9bn in the previous three months, thanks to the oil price increase and more refining activity, although a little lower than expected because of weaker margins in its chemical business and reduced trading.

On Monday, Chevron announced a $53bn deal to buy fellow US producer Hess, the biggest transaction in its history, doubling down on its bet that demand for fossil fuels would remain strong for decades to come. Today it reported third-quarter earnings of $6.5bn, down from $11.2bn last year, but up from $6bn in the previous three months.

This doubling down was attacked by former US vice-president and climate campaigner Al Gore this week in an FT interview as he hit out at the “buddy-buddy” relationship between political leaders and the fossil fuel industry, which he said was damaging prospects for global climate action.

Gore has also criticised the industry’s “capture” of the UN climate change negotiations. Big Oil remains unapologetic: “We are not selling a product that is evil,” Chevron chief Mike Wirth told the FT this week as he laid out a “real world” case for fossil fuels.

The backdrop to the industry manoeuvring is the shift from fossil fuels to cleaner sources of energy.

The International Energy Agency said this week that demand for oil would fall by almost half by 2050 if governments carried through on their green pledges and said that the energy crisis triggered by Russia’s full-scale invasion of Ukraine, rising tensions in the Middle East and record temperatures highlighted the risk of continuing to rely on fossil fuels. The IEA also laid out the ramifications of governments failing to follow through on their pledges, showing oil demand would barely fall by 2050.

The FT editorial board said recent tie ups are part of the race to be last man standing, a bet that the IEA is wrong, and proof that, as Saudi Arabia’s energy minister said this week, “hydrocarbons are here to stay”. 

What the recent megadeals really show however is that we are in a new age of uncertainty, writes energy editor David Sheppard, who says that those betting the transactions signal robust demand growth may want to think twice.

“You can of course believe that the IEA have got this wildly wrong,” he says, “or that governments will grow tired of addressing climate change, if their populations deem it too complicated or expensive. But within the wide ranges and uncertainty of the IEA scenarios is a glimpse into what the likely path is for the oil sector. Investors should be careful about swaggering blindly towards it.”

Need to know: UK and Europe economy

UK prime minister Rishi Sunak is to put crime and energy at the heart of his next legislative programme in the King’s Speech on November 7. Sunak said however he would “not rush to regulate” AI as he announced the creation of a safety body to evaluate and test new technologies.

The European Central Bank held its key interest rate as expected at the all-time high of 4 per cent, ending its streak of 10 consecutive increases.

EU leaders backed plans to use earnings from Russia’s frozen assets to help Ukraine. Western sanctions have immobilised $300bn belonging to Russia’s central bank since the full-scale invasion began. Russia today raised interest rates more than expected to 15 per cent, citing high inflation and the weak rouble.

In Turkey, rates were raised for the fifth time in as many months to 35 per cent, with the threat of higher oil prices an additional concern in a country that imports the bulk of its energy. Its stock market meanwhile tumbled after President Recep Tayyip Erdoğan stepped up his criticism of Israel and its allies at a time when Ankara is desperate for western investment. 

Need to know: Global economy

China’s Communist party beefed up its new financial regulator which will act as de facto watchdog, planner and decision maker for the country’s $61tn financial sector, weakening institutions such as the People’s Bank of China and the Securities Regulatory Commission.

Li Keqiang, the former Chinese premier who served under President Xi Jinping and was seen as a leading proponent of market-oriented reforms, has died aged 68, months after leaving office.

Zambia reached a debt relief deal on nearly $4bn owed to private bondholders, fuelling hopes that its long-running debt restructuring might be nearing an end.

Need to know: business

NatWest admitted to “serious failings” in the way its private bank Coutts treated politician Nigel Farage when it closed his account, and promised “substantive changes” to its procedures. NatWest also reported lower than expected third-quarter profits and warned that benefits from higher interest rates were starting to decline. Its shares tumbled.

The post-pandemic travel boom continues. British Airways owner IAG and Air France-KLM reported record profits over the summer while London’s Heathrow airport raised its passenger forecasts after an “extraordinary” peak season.

Cruise, the driverless car company owned by General Motors, paused its operations after California regulators barred its vehicles from the state’s roads following an accident in San Francisco.

Ford reached a tentative deal with the United Auto Workers union that would raise wages 25 per cent over four years and potentially end a 40-day strike. About 29,000 workers at Stellantis and General Motors remain out.

The American south-east meanwhile is vying to become the new Detroit for the electric vehicle age. In Europe, Mercedes said the “brutal” price war in EVs had dented its profits while in Japan, a lot of hope is riding on Toyota’s progress on solid-state batteries.

Bond market turmoil has forced US companies to delay borrowing plans, making October the slowest month for debt issuance since 2011.

Science round-up

Record high sea surface temperatures and unexpected marine heatwaves are threatening ocean biodiversity, affecting corals, seagrasses, fish and birds, according to Copernicus, the European earth observation agency.

The record readings also mean hurricanes are more likely. Acapulco in Mexico was hit by a “nightmare” version — hurricane Otis — on Wednesday, catching authorities unprepared and leading to warnings about flash floods and landslides.

The UN’s climate science body said the chances of the world limiting the rise in global temperatures to 1.5C since pre-industrial times had decreased since its 2021 report.

Drugmakers Eisai and Eli Lilly presented research that shows the benefits to patients from using pioneering new Alzheimer’s drugs very early in the development of the disease. Alzheimer’s is the most common form of dementia but until recently, many large pharma companies were reluctant to invest heavily in finding treatments after decades of failure.

Innovation editor John Thornhill says it’s time to get serious about the dangers of quantum computing as we approach “Q-day” — the moment a quantum computer might crack the RSA cryptosystem, widely used by tech companies, banks and governments on their data.

Some good news

A Philippine spotted deer fawn, one of the world’s rarest animals, has taken its first steps at Chester Zoo. The new arrival, named Hercules, is part of a conservation breeding programme between zoos in Europe, set up at the request of the Philippine government to ensure the survival of the highly endangered species.

Something for the weekend

Try your hand at the range of FT Weekend and daily cryptic crosswords.

Correction: This article has been amended to make clear the Chevron link in the introduction refers to earnings, not revenues. We apologise for the error.

Source: Economy - ft.com