The Commonwealth Bank of Australia’s [ASX:CBA] $10 billion profit raised a lot of eyebrows yesterday.
You can certainly find plenty of opinions on the pros and cons of this result too.
But while most are fixated on their bottom line, the bigger story may be within CBA’s climate report. Because while lending is their bread and butter, our biggest bank has decided to withhold money from one sector in particular…
Oil and gas explorers, it seems, aren’t welcome to do business with CBA.
Having revised its climate goals, the bank has ruled out lending for new fossil fuel projects. On top of that, existing fossil fuel borrowers with the bank will need to detail their emission-cutting plans from 2025 onward.
It’s a big decision to make, but not a totally unexpected one.
Back in 2021, the bank went through the same internal debate. The only difference then was that they actually asked their investors what they thought.
Only 14% of CBA shareholders backed the fossil fuel lending ban at the time. I can’t imagine opinion has changed that drastically in the two years since…
Which begs the question, why go ahead with it now?
Energy concerns mounting once more
I wish I could provide a logical answer to the CBA’s decision, but it is hard to find one.
Perhaps the bank hopes by distancing themselves from fossil fuels they’ll be able to win more business from energy transition projects. But even then, this policy decision is likely to amount to a simple PR stunt.
Either way, what’s done is done it seems.
The irony of it all, however, must be the timing of this decision.
On the same day that CBA announced this new plan, gas prices spiked by 30% or more in Europe.
The catalyst?
Potential strikes from local Chevron and Woodside workers could delay Aussie LNG exports. A stark and clear example of the influence and importance of our oil and gas industry. And a firm reminder of why fossil fuels are still vital to powering much of the world.
Because while transitioning to more renewable fuels is a noble goal, it is still going to take time.
You can’t rush something this big without breaking markets. This is why oil and gas will continue to be relevant as transitionary fuel sources. But if we don’t invest in new exploration and wells, then Europe won’t be the only one facing steeper prices…
Oil continues to climb
Last week, I brought up the growing issue of US oil supplies. As I noted, the Biden Administration has been very slow to replenish the strategic petroleum reserve (SPR).
They even decided not to commit to the purchase of 6 million barrels last week because of ‘market conditions’. In other words, they believe prices are too high.
Well, one week on, and prices are still going up…
One barrel of WTI crude is now up to US$84.40 per barrel, compared to US$82.15 last week. Another sign that perhaps fossil fuels are more vital to our current economy than some will admit.
And with US gasoline supplies contracting by 2.7 million barrels again, supply is only growing tighter.
It genuinely seems as though a few select groups are determined to lead us into another energy crisis. All because they’d rather look like they’re doing the right thing instead of ensuring the lights stay on.
However, as I said last week, this is a great opportunity for investors willing to take a punt…
Because even if banks and governments may be giving up on oil and gas, you shouldn’t.
As one pundit puts it:
‘The good news for the bulls: many commodity analysts are confident that the oil price rally has enough steam to continue running. Standard Chartered analysts have forecast that the largest global supply deficits this year will be in August and September, with deficits likely to continue till the first quarter of 2024.
‘The International Energy Agency (IEA) in Paris has predicted an oil shortage of about 1.7 million barrels a day during the second half of the year.’
The outlook for investment in black gold is looking stronger by the day.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
