Wells Fargo’s $28 Billion Oil Lenders Are Ready for This Boom
Remember when oil went negative in April 2020 and everyone was writing obituaries for the fossil fuel industry? When producers literally had to pay people to take their oil because there was nowhere to store it? Pepperidge Farm remembers and so does Wells Fargos energy lending desk. They stuck around when other banks were running away from oil and gas exposure like it was radioactive. Now with crude pushing $100 a barrel theyre feeling pretty smart about that call.
Wells has about $28 billion in energy lending exposure according to their filings. Thats a significant position in an industry that was supposedly dying, supposedly on its way out, supposedly obsolete in the face of inevitable green energy transition. The bank bet otherwise and so far the bet is paying off. With oil and gas prices at multi-year highs those loans are looking a lot healthier than they did two years ago when half the industry seemed headed for bankruptcy.
The Contrarian Bet That Actually Paid Off
A lot of banks pulled back from fossil fuel lending after the 2020 disaster. ESG pressure was mounting with activists demanding divestment from carbon-intensive industries. Reputational concerns grew as climate change became impossible to ignore. There were actual credit losses when oil companies went bust. All legitimate reasons to reduce exposure to an industry that seemed like it might not exist in 20 years. Wells didnt abandon the space entirely though and now theyre positioned to benefit from the recovery.
Oil companies that survived the 2020 crash are now throwing off cash like crazy. High prices mean easier debt service – when youre selling barrels at $100 instead of $50, you have a lot more money to pay back your loans. Loan portfolios that looked risky and required big loss reserves are performing fine. The energy desk at Wells probably looks pretty good internally right now. The people who argued for staying in oil while others fled are getting promoted I imagine.
The Longer View Is Still Uncertain Though
Of course the energy transition hasnt gone away just because prices are high right now. Climate concerns are real and getting harder to dismiss. Demand for oil will eventually decline as electric vehicles gain market share and renewable energy expands into more sectors. The question is whether that happens in 10 years or 30 years and how bumpy the transition gets along the way.
For now though the world still runs on oil. Putin invading Ukraine just reminded everyone how dependent we remain on fossil fuels. Europe is scrambling to find alternative gas supplies. America is begging domestic producers to drill more. The green transition everyone was counting on is suddenly taking a back seat to energy security concerns. And banks that maintained exposure to producers are benefiting from the price spike.
Whether thats good long-term strategy or just lucky timing depends entirely on your view of how quickly the transition actually happens. If youre a climate optimist who thinks EVs and solar are going to destroy oil demand by 2030, Wells made a bad bet that got bailed out by war. If youre skeptical that the transition will happen smoothly, they made a smart contrarian call when others panicked.
I lean somewhere in the middle honestly. The transition is real and inevitable but transitions take longer than activists hope and shorter than incumbents pray for. Wells probably made a reasonable call that looks genius right now but might look foolish in 15 years. Or it might look even smarter if the world realizes we need hydrocarbons longer than the optimistic projections suggested. Nobody actually knows how this plays out.
What I do know is that the bank didnt panic when everyone else did and thats worth something regardless of whether the underlying thesis proves correct. Panic selling at the bottom is how regular investors lose money. Wells held their nerve when oil went negative and now theyre collecting interest payments from companies making record profits. Thats not nothing. History will judge the long-term wisdom. In the meantime theyre making money hand over fist.
