Shell’s CEO Warns That Oil Prices Will Continue Rising Long After the War Ends. Here’s What That Means for Oil Stocks.

Oil prices have surged this year amid the conflict with Iran. Brent oil, the global benchmark price, has risen more than 50%, jumping from around $60 a barrel to more than $90. On a positive note, Brent is currently well below its peak of nearly $120 a barrel, reached in the early days of the war. Crude has cooled off amid hopes that the U.S. and Iran will reach a peace deal that includes reopening the Strait of Hormuz.

Many people outside the oil industry believe oil prices will decline rapidly once the Strait reopens and remain low in the coming years. However, the CEO of global oil giant Shell (NYSE:SHEL) has a different view. He expects oil prices to continue rising long after the war ends. Here’s why and what that means for oil stocks.

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Upside pressure over the longer term

Shell’s CEO, Wael Sawan, believes oil and gas prices will keep rising well after the current Middle East conflict ends. That’s largely due to the expectation that global oil demand will continue to grow. As a result, oil companies will need to continue developing new supplies to offset production declines and depletions in legacy oil fields.

That poses a problem. Sawan told attendees at the Wall Street Journal Leadership Institute CEO Summit that while the oil industry can currently meet global demand (once the Strait reopens), it will be more challenging going forward. That’s because “all the easy oil and gas has been found.” As a result, oil companies will need to pursue resources that are currently uneconomic to explore and develop. Prices will need to rise to make it profitable to tap into the resources the economy will need in the future. That drives his view that “prices are going to move up, [which is] the story of five to 10 years [ahead].”

The importance of exploration

Shell is already investing money to help support future demand growth. The company aims to add 1 million barrels of oil equivalent (BOE) per day to its output by 2030 through the commissioning of new projects. Additionally, it’s looking at future opportunities to expand its output. For example, the company acquired acreage in Angola and South Africa to explore for new resources. It’s also evaluating opportunities in Kuwait and Venezuela. These investments will enable Shell to meet future global supply needs and capitalize on rising prices.

Most other major oil companies are also investing to find and develop future supply. For example, last August, ExxonMobil (NYSE:XOM) acquired a large block offshore Trinidad and Tobago (UD1). It’s next to the company’s Stabroek block in Guyana, where it made 30 discoveries totaling 11 billion BOE. ExxonMobil recently sold a 10% interest in UD1 to Occidental Petroleum (NYSE:OXY), which will now help fund its portion of the exploration and development costs. Exxon initially plans to invest $42 million in seismic testing and exploration wells, which could pave the way for nearly $22 billion in future investment to develop the field. UD1 could be a major growth driver for these oil companies, enabling them to capitalize on rising demand and prices.

Meanwhile, Occidental, along with partners Chevron and Woodside Energy, recently made an oil discovery at their Bandit prospect in the Gulf of Mexico (also known as the Gulf of America in the U.S.). Bandit is near another Occidental-operated facility, which it could tie into in support of its future development. Occidental also signed a 15-year extension of an agreement in Oman last year to tap a potential resource of more than 800 million barrels. These moves will further enhance Occidental’s ability to capitalize on the growth ahead in the oil industry.

Oil could be much higher in the future

Oil prices could fall in the near term once the Strait of Hormuz reopens. However, Shell’s CEO sees them rising over the longer term, due to growing demand. That bodes well for oil companies actively exploring for new resources, as it will give them the fuel to grow production and capitalize on higher future prices. This outlook makes oil stocks look like a compelling long-term investment.

Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.