(BLOOMBERG) - Nobody loves oil companies. Yet, the world's disdain for its petroleum giants could carry a sting in the tail - a jarring price spike.
Oil may be on the way out, but it will be a long goodbye. Even if demand peaks, companies like ExxonMobil and Royal Dutch Shell need to keep investing tens of billions of dollars every year in fossil fuels just to stand still. Right now, many investors would prefer to take that cash in dividends, or see it channelled into renewables.
Oil producers have been hammered by the Covid-19 pandemic.
Last year, collapsing cash flow, tens of billions of dollars in writedowns, large quarterly losses and dividend cuts became the norm for the industry.
Companies have taken dramatic steps to conserve cash. Many cut their dividends - in Shell's case, for the first time since World War II.
Combined capital expenditures by the super majors in the third quarter of last year were just half the level of a year earlier, and the lowest since 2005.
With demand recovering and crude back above US$50 a barrel, the worst of the Covid-19 crisis appears to be over for the oil industry. But there are reasons to doubt that these companies are in a position to significantly boost spending on oil and gas.
In Europe, BP, Shell, Total and Eni have all pledged to eliminate most of their greenhouse gas emissions by mid-century and channel an increasing share of their investments into clean energy.
In the United States, Chevron and ExxonMobil are under less pressure to go green but face scrutiny from investors dissatisfied with their returns.
An increasing number of people might consider declining investment in fuels a good thing. There are alternatives available - from electric vehicles to wind and solar power - that do not change the climate, but it is taking time to deploy them on a global scale.
In the meantime, an oil-price spike would be a big economic headwind for a world recovering from the pandemic, especially in developing countries where the burden falls hardest.
Covid-19 has hit the American oil industry harder than the previous downturn. Production is down about two million barrels a day from its peak, almost twice as big as the drop that followed the 2014 price slump.
The companies that survived last year said they had learnt from their mistakes, and investors are demanding an end to years of profligate spending.
"The industry has permanently changed, at least for the next several years," Mr Michael Cohen, chief US economist at BP, said recently. The American oil industry is not monolithic, and some companies could still try to grow, but most drillers are focused on improving returns or repairing their balance sheets.
The boom years, when daily US output would clock an annual expansion of a million barrels a day, are over, Mr Cohen added.
Companies "are not interested in growing into a large, oversupplied market", he noted.
Not everyone is so convinced that shale drillers have kicked the growth habit, especially when Opec+ may once again be offering a life raft to the industry by pushing up pries.
Since Saudi Arabia announced a surprise production cut on Jan 5, West Texas Intermediate crude has held above US$50 a barrel.
The coming year will be crucial in determining whether the industry is capable of rising to that challenge. A report from the International Energy Agency estimated that upstream investment would drop by another 20 per cent this year, but prices have already rallied since it was published last year and "capex is likely to be higher than our initial estimates", said Mr Jamie Webster, senior director at Boston Consulting Group.
Fourth-quarter earnings season had been expected to show a brighter outlook for the battered oil majors. But it got off to a shaky start after Chevron posted a surprise loss last month.
Its ambitious growth plans for the Permian - the most prolific US shale basin - remain on hold.
It could take until the second half of the year or even early next year before conditions are right to increase investment there, chief financial officer Pierre Breber said.