An integrated is two cyclical businesses that rarely peak together

It traded at 162.92 this morning, +0.43% on the session. If you want exposure to the barrel, an integrated is a strange way to get it, and that is by design rather than by accident.

The internal hedge

Upstream earns more when crude is expensive. Downstream, broadly, earns more when the spread between crude and refined product is wide, which frequently coincides with crude being cheaper than the upstream would like.

Holding both smooths the earnings. It also means that a correct view on the oil price translates into a muted outcome in the share price, because half the business was positioned the other way.

What that is good for, and what it is not

Good for: an income investor who wants energy exposure without the earnings volatility, and who is being paid a dividend that has survived several cycles.

Not good for: expressing a view on crude. There are cleaner instruments, including the commodity itself and the pure-play producers, and using an integrated for this is paying for a hedge you did not want.

• Upstream unit economics, which set the floor
• Refining margin, which sets the swing
• Capital discipline across both, which sets whether the dividend survives the next bad year
• Chemicals, which is a third cycle bolted on and follows neither of the first two

Why I am flat

I do not hold instruments whose structure works against the view I am trying to express.

My views on this sector are directional and the integrated is built to dampen exactly that. It is a perfectly good business. It is the wrong tool for what I do.

Where it would make sense

If I wanted durable income from energy with an acceptance of muted upside, this is a sensible way to own it. That is a different mandate to mine and I would not pretend otherwise.