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Higher oil prices, stoked afresh by the conflict in the Middle East, are benefiting oil and gas company finances as prospects dim for renewable energy companies, aggregated data compiled by Credit Benchmark show.
Since 2021 there has been a growing contrast in how banks and other financial institutions have regarded the creditworthiness of oil and gas companies compared with those power companies generating wind and solar energy, Credit Benchmark found.
Supply chain difficulties and rising raw materials prices, exacerbated by geopolitical tensions with China, a major producer of clean energy technology, have made credit analysts increasingly negative on the outlook for renewable energy companies.
Conversely, the rise in oil prices post COVID-19, boosted by supply concerns resulting from the conflict in Ukraine, have significantly reduced the default risk for oil and gas companies. Since Hamas attacked Israel, oil has climbed to more than $90 a barrel and some analysts are predicting prices will settle well above $100 in the coming months.
Michael Crumpler, Credit Benchmark’s CEO, said: “The regional conflict in the Middle East will only exacerbate the divergence in prospects between the fossil fuel and the renewable energy sectors. As COP 28 approaches next month, the disparity highlights the significant challenges the renewables sector faces in attracting investment. We are also starting to see certain governments water down or backtrack on their net zero commitments, which is another negative for the renewables sector.”
Credit Benchmark anonymizes and aggregates data collected from more than 40 of the world’s largest banks, to provide a comprehensive picture of credit risk spanning a broader universe of entities than that provided by the large credit rating agencies.
