The economic development of emerging countries combined to maintaining current income levels in OECD countries require strongly growing flows of energy and materials.  World, regional and local economies are based on a high degree of mobility of passengers and freight. Currently, only oil products meet the energy requirements of the transports sector.

The oil market is facing structural tensions since the mid-2000s. World production of fossil liquid hydrocarbons is facing several constraints: declining trend of oil discoveries in mature regions, irreversible decline of oil fields developed over the last decades, increasingly difficult conditions of extractions of resources, lasting destabilization of several oil producing countries, increasing shortage of qualified and experienced human resources in the hydrocarbons and energy industries.

Production of non conventional oil (extra heavy oil, shale oil) and synthetic fuels (biofuels, Gas-To-Liquids, Coal-To-Liquids) require high oil price and long lead times

Limited hydrocarbons global supply compared to potential demand translates into the disappearance of spare capacities in the middle of the 2010-2020 decade. The gradual shift of oil price regime from the producer’s production cost to the consumer’s user value is strengthening the bullish trend and generating higher volatility. The reduced flexibility of the supply chain creates the conditions of a rising vulnerability to the different risks: political and social risks in producing and transit countries, industrial risks of exploiting and maintaining increasingly complex infrastructures, local risks of damages linked to climatic events.

The strong increase of the oil price impacts the entire energy complex both by indexation (as in the case of natural gas) and by diffusion of the tension of the oil market to substitution markets (fossil and renewable fuels). Households as well as the business sector suffer from a context of price inflation of manufactured goods, production costs and transport.

Energy importing countries face the deterioration of trade balances. Energy exporting countries record high surpluses. Foreign exchange values reflect the evolution of macro-economic fundamentals and terms of trade.

The evolution of the price of oil and other energies impact the whole range of financial assets – stocks, currencies, bonds, other commodities.

Oil producing and oil services companies directly benefit from the strong increase of hydrocarbons prices. However, in this globally positive context of inflating oil and gas rents, significant divergences appear in equity valuations depending on each company’s profile in respect of reserves and production growth, exposure to political, social and contracting risks and possible participation in merger and acquisitions.

Oil producing and oil services companies keep a central role in the global energy system. A key component of their absolute and relative stock valuation is derived from their own ability to adapt and implement their strategy in the mid-long term phase of energy transition.

Energy transition impacts all economic sectors beyond the oil & gas sector. In all sectors, absolute and relative stock valuations sanction the consistency of business models to the evolution of energy, macro-economic and monetary contexts and consumption patterns.

Oil and energy were absent from assets allocations strategies until the end of the 1990s. Over the last decade, oil has been more and more considered as an asset class by investors with a view of diversification. The creation and development of Exchange Traded Funds (ETF) has provided a simple tactical opportunity. Today, the full integration of the energy challenge and the implications of the global oil situation is a necessary condition of successful assets allocations strategies.