Big Oil Stocks Up for Leaner Times

Big Oil's recent allocation of dollars suggests the supermajors are preparing for leaner times, despite public warnings about higher prices if the Strait of Hormuz remains closed.

The sector generated a record $70 billion in free cash flow during the second quarter, surpassing the peak of $60 billion after Russia invaded Ukraine. Instead of returning this windfall to shareholders, the majors focused on paying down debt and restructuring operations.

Chevron reduced its leverage by about $8 billion, ExxonMobil slashed its debt, and BP warned staff about 'potential oversupply and lower oil and gas prices' in the coming months. Shell and Total kept their share buybacks below last year's level despite higher oil and refining margins.

The industry is paying a price for its newfound financial discipline, with most major energy companies underperforming the market. However, by putting cash aside today, Big Oil may be building war chests to keep dividends growing during inevitable future price drops.