Key Findings
Despite industry hopes for the year, fossil fuels significantly underperformed equity markets in 2024.
It’s a by-now-familiar story for an industry that has spent much of the last decade dragging down long-term investment portfolios.
With the transient post-Ukraine profit surge firmly in the rearview mirror, the industry’s fundamentals continue to demonstrate weakness in today’s energy markets.
The traditional fossil fuel business model faces structural risks in a decarbonizing world, and the industry has yet to demonstrate a coherent response.
Introduction
As 2024 began, oil majors struck up a confident tune. Higher energy prices had generated strong profits in the wake of the emergence from the Covid-19 pandemic and Russian invasion of Ukraine. To the industry, this moment was here to stay: 2023 had been an “outstanding year,” ExxonMobil told its shareholders last February, and by maintaining “existing strategy, building on world-class execution,” the company would be well-positioned to meet shareholder expectations moving forward.
And yet the verdict is now in, with the traditional energy sector ending the year near the bottom of equity markets. The S&P 500's fossil fuel components saw a 5.72% return in 2024, compared to the full index's 25.02%. By now, the story is familiar. The fossil fuel sector underperformed the S&P 500 in seven out of the last 10 years, delivering the lowest performance and highest volatility of any of the S&P’s sectors over the period. Industry rhetoric aside, oil, gas, and coal have been unreliable and inconsistent contributors to long-term investment portfolios.
