Almost three years ago, Russia’s invasion of Ukraine wiped out Europe’s largest source of gas and shocked global energy markets, setting the stage for quarter after quarter of better-than-expected earnings for the fossil fuel producers ready to profit from the volatility. Now those returns are beginning to cool.
But as markets have reduced to a simmer, oil executives have warned that profits are also going off the boil. A glut of new oil and gas projects, stoked by a pro-fossil-fuel agenda from the White House, could mean weaker markets in the future too.
Europe’s largest oil company, Shell, is widely expected to deliver weaker profits this week when it unveils its full-year financial results. The world’s largest trader of liquefied natural gas (LNG) warned shareholders earlier this month that its oil and gas trading results for the final quarter of last year were likely to be significantly lower than in the previous three months.
Shell’s adjusted annual profits are likely to fall to just over $24bn (£19bn) for last year, according to the consensus view of City analysts. This represents a drop from 2023, when its full-year earnings tumbled to $28.25bn from a record high of almost $40bn the year before, when Russia’s war began.
The largest US oil company, ExxonMobil, is expected to report weaker profits in its annual results this week. The oil supermajor, which reported a record $56bn profit in 2022, told investors this month to expect sharply lower oil refining profits and weakness across all its businesses.
Even with Trump’s slew of measures to support the fossil-fuel sector, it is unclear whether oil companies can expect a return of profits delivered by the Kremlin’s war machine. Within days of his inauguration, the 47th president called on the Opec oil cartel to lower global oil prices further by pumping more crude. Trump claimed this could end the war in Ukraine – presumably by throttling revenues from the Russian state oil company – accusing producers of prolonging the conflict by keeping prices high.
Trump’s call for more crude production from Saudi Arabia, and for US oil companies to “drill baby drill”, could achieve his promise of easing costs for households, but would be little help to the oil companies that donated millions to his presidential campaign, according to analysts. The recent profit warnings from Exxon and Shell have emerged in large part due to weaker oil and gas markets, which show little sign of a structural recovery in the near term.
The US benchmark price for gas, known as Henry Hub, averaged $2.57 per million British thermal units (MMBtu) in 2023, about a 62% drop from the 2022 average when gas markets surged after Russia’s full-scale invasion of Ukraine. In 2024, gas prices fell further to an average of $2.33/MMBtu.
It’s a similar story for oil markets. The international benchmark Brent crude averaged above $100 a barrel in 2022 as war broke out in Ukraine, before dropping to $82.60 in 2023. Last year, prices averaged $80.20 a barrel, despite an escalation of the Gaza conflict, with prices falling to an average of $74.40 in the final quarter.
In part, the steady decline in fossil fuel prices reflects a “new energy normal” across Europe, where countries have adapted to the loss of Russia’s pipeline gas and oil supplies by relying more on seaborne imports from the US and the Middle East.
But the falling price of oil and gas points to deeper questions around the world’s future appetite for fossil fuels and the relentless growth of new projects to sate it. The International Energy Agency has made two things clear: first, no new fossil fuel projects are consistent with the world’s climate goals; second, the surge in new oil and LNG projects will outstrip demand from this year, leading to lower market prices for the rest of the decade.
“Trump calling for a lower oil price makes you think he is less close to the US oil industry, Putin and Mohammed bin Salman than what one might have thought,” says Bjarne Schieldrop, a commodities analyst at SEB. “Is he siding with the US consumer, favouring lower oil and gasoline prices, or is he siding with the rich oil lobby who wants to control supply and keep the oil price at a healthy level?”
