When should oil producers make the big shift to cleaner energy? read on: our first note looks at a bernstein research study of groups that have already made the jump.

Our second returns to a producer that says it will also do that: bp, and last weeks long-term outlook. it sees oil demand falling over time, but us supply rising how does it square this? we talked to michael cohen, bps chief us economist and head of oil supply analysis, to find out.

Change is afoot in european oil and gas. starting with bp this month, companies are beginning to lay out concrete plans for a less oily future.

But how will investors react? a new paper by bernstein research looks at what can be learnt from past examples of companies making the shift away from oil.

Theres a clear trend when you dig into the numbers that there is a point in time where the earnings generation from a new growth area... is sufficient to warrant serious market or investor interest, said oswald clint, an analyst at bernstein.

For now, bp despite its pledge to increase its low-carbon investments 10-fold and cut production by 40 per cent hasnt yet reaped the rewards. its share price this week fell towards the 25-year low it hit in march.

Exactly when the scale tips varies. look at some examples:

Neste: finnish refining group neste began producing renewable diesel in 2010. it is now the worlds largest producer. its shares started shifting in 2013 when around half of its earnings were still refining and sale of hydrocarbons.

Reliance: at the turn of the century indias reliance was an integrated hydrocarbon group, with businesses spanning upstream oil and gas, refining and petrochemicals. but it has shifted into retail and digital. shares began to move upwards in early 2017, well before these new areas made any material contribution to its earnings.

Indian oil group reliance has begun to shift into retail & digital. chart showing share price and ebitda* by division (%)

Orsted: the classic transformation success story, orsted previously dong energy, denmarks national oil and gas producer was the first fossil fuel producer to ditch the old business. it divested its fossils business in 2017 and shares soared.

Danish upstream producer orsted shifted into wind. chart showing share price and operating income by division (%)

What investors want

How quickly investors reward companies for moving away from fossil fuels varies. but they are eventually compensated and in spades. two key elements are essential for investors:

Ruthless disclosure was one reason orsted nailed its transition.

Orsted gives every single data point. if you pull down their analyst book there is not a single number they dont give you. no investor can pick holes or cannot model the pipeline or the valuation of that company, mr clint said.

Bp has been first out of the gates among europes big names. but it will not be the last. equinors new chief executive takes the helm in november and will probably rapidly set out his stall for the coming years. shells strategy day in february is likely to see it plough a furrow similar to bps. totals investor day is next week.

They're all following to some degree or in some shape or form, said mr clint. it's just [a question of] the speed of travel.

British oil major bp is set to shift into low carbon. chart showing share price and ebida* by new division (%)

(myles mccormick)

Es is intrigued by bps outlook for us tight oil growth, especially given its bearish view of long-term global crude demand.

Bps central demand scenario called rapid sees global consumption falling steadily from a pre-covid 2018 baseline until 2030. then it drops fast to 2050: demand then will be about half what the world consumed last year. there is only one way to view oil prices in this scenario: with a microscope.

Line chart of liquid fuel (million barrels a day) showing oil demand by bp: drifting lower or dropping hard

Yet, while twilight sets on the global oil industry, bp expects the us tight oil sector a capital-demolishing industry in recent years, even before the epic 2020 crash that slashed output by 25 per cent to increase production and market share through the 2020s. it will do so at the expense of opecs far lower-cost producers, including saudi aramco.

Only after 2030 will opec reclaim market share but of a fast-shrinking market. (global oil demand dropped by an unheard of 20m barrels a day or so this year, at the height of the pandemic. bp thinks it will fall by 43m b/d between 2030 and 2050.)

Line chart of million barrels a day showing us tight oil: up, then down

Bps tight oil growth scenario is rosier than even some shale executives, from conocophillipss ryan lance to parsley energys matt gallagher, expect.

Bp doesnt say what oil price it bakes into its rapid scenario.

Michael cohen, bps chief us economist and head of oil analysis, said a key assumption throughout the outlook is that opec manages oil supply and demand back to equilibrium so that you have a slightly higher price than now.

Among other assumptions, mr cohen told es, are:

Some analysts agree. artem abramov, rystad energys head of shale research, told es that bp was pretty conservative in its tight oil growth outlook.

But the outlook assumes tight oils competitors will react kindly to its recovery. just six months ago saudi arabia and russia launched a price war that, despite its brevity, bankrupted dozens of shale companies, crippled a quarter of us output, and, in tandem with the pandemic, sent american oil prices spiralling below zero. they could do so again.

If bp is correct that the world will consume ever fewer barrels of oil over the coming decades, why would lower-cost opec producers sit on their reserves and let shale rise again, capturing this shrinking market at their expense? (derek brower)

The oil market recovery after the easing of global coronavirus lockdowns is stalling, says kayrros, a data analytics company. after plunging by nearly 2m barrels a day in july, global crude stocks have since bounced back up by nearly 40m, said antoine halff, chief analyst at kayrros, and those builds are picking up steam. they rose 1.9m b/d in the two weeks to september 20. some of the increase reflects seaborne barrels moving to onshore storage, often in china, mr halff said. when that is taken into account, stocks are still moving in the right direction, but not fast enough.

The dallas fed released its third-quarter energy survey yesterday. the business activity index declined modestly compared with the collapse in the second quarter. most other energy indices also pointed to continued contraction.

Comments from anonymous respondents were telling. politicians got some stick:

Most commentary was bleak: