BP plc And Royal Dutch Shell plc After Peak Oil

What the future holds for BP plc (LON:BP) and Royal Dutch Shell plc (LON:RDSB).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

royal dutch shellThe oil industry used to be a no-brainer investment. There seemed to be an infinite supply of oil, and with more and more people owning cars, demand — and thus oil prices — were rocketing. This meant that oil companies would be booming.

But has anyone asked the question: what happens when the oil runs out? Oil companies such as BP (LSE: BP) (NYSE: BP) and Shell (LSE: RDSB) (NYSE: RDS-B.US) are already finding that their production is falling. They are now scouring the furthest reaches of the planet for oil, from the Artic to the Gulf of Mexico and the South Atlantic.

Oil is increasingly difficult to extract

But any oil they do come across is increasingly difficult, and expensive, to extract. And the Macondo tragedy shows what can happen when the oil industry tries perhaps a little too hard to find more oil.

The world is already beginning to adjust to life after oil production has peaked. 25% of Toyota Yaris’s sold are now hybrids. We have already seen the hybrid go from being a glimpse of the future to entering the mainstream of motoring today.

This is all part of a trend towards higher fuel efficiency and finding ways to reduce our reliance on oil — this is a trend that is just getting under way. The days of the gas guzzler are long past.

The next step is the plug-in hybrid, and we are just seeing the first cars offering this technology appear on the market. The advantage of plug-ins is that we already have the infrastructure in place, in terms of a national electricity network. We just need to provide accessible sockets.

A future of more choice

Alongside this other technologies, such as fuel cell cars, are also being developed. What is emerging, I think, is a future where people have more choice about what sort of car they will drive. Some people will own hybrids. Some will own plug-in hybrids. Some will own fuel-efficient diesels. And, if you’re feeling nostalgic, wouldn’t it be great to drive a traditional petrol-driven sports car?

That’s why I think that oil prices, and oil demand, won’t suddenly fall off a cliff. But this is an industry in transition. I suspect that BP and Shell are retrenching, reducing the amount they spend on exploration and refining, and focusing more of their attention on areas of growth: gas, fracking, oil sands and perhaps renewables.

But, just as the TV industry had a future even after the dawn of the internet, the oil industry certainly has a future as well. But this is a future where they will no longer have the road to themselves.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Prabhat owns shares in neither BP nor Shell.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »