ENERGY is a curious industry. Demand for oil is increasing at an extraordinary rate. Petrol, jet fuel and natural gas prices are at a high, even record levels worldwide, but are oil companies spending merrily? Not really. Is oil output soaring? No, it is not.

A clutch of big oil companies report second-quarter earnings next week. Attention will be paid to profits — Deutsche Bank forecasts about $68 billion (£37 billion) for BP, ChevronTexaco, ExxonMobil, Shell and Total combined — and to Shell’s corporate governance troubles.

More interesting is what is not happening at these energy goliaths. With the Brent crude price close to $40, we know BP and Shell are making pots of money; a failure by an oil company to display good profits next week would be disastrous.

What is not happening is growth. Ignore the bumper quarterly harvest and what you see at each of these companies is a fairly dull utility trying to boost returns, keep a lid on costs and pay out huge dollops of cash to investors. Most of the oil majors will report flat or falling oil production volumes, with the only significant gains coming from BP because of the addition this year of oil output from its Russian acquisition, TNK-BP.

Strip out Russia, and Deutsche Bank reckons that BP’s output will fall by a couple of per cent. Merrill Lynch believes net oil output at Shell could be down between 4 per cent and 5 per cent in the second quarter, because of divestments, operational problems and falling well output. ExxonMobil is barely growing and asset sales at ChevronTexaco will send output falling, leaving Total the only company that consistently raises the bar.

So, are the oil companies junketing as they shrink? If the world wants more oil, why is the industry not meeting the challenge? In part, the problem is historic. The oil price collapse in 1998 forced many companies to make drastic cuts in spending and Shell was one of the more aggressive, a strategic blunder for which the company is paying dearly in poor reserve replacement. Another factor is the oil majors’ bias to North America and Europe, both oil provinces in decline. It is notable that Total, the most growth oriented of the majors, has big positions in Africa and Asia.

Even more important is the preference of investors for companies to save cash. Early this year, as Shell was attempting to explain how it lost four billion barrels of oil reserves, BP was shifting its focus to cash generation. The higher the oil price, the more we will pay out in dividend and stock buybacks, Lord Browne of Madingley, BP’s chief, said. BP’s oil explorers are being kept on a choke-lead and no matter how loud the clamour from motorists for cheaper petrol, the oil company will not throw money at the problem, just enough to fill up the tank every year and a little bit more. Investors cheered.

Meanwhile, Shell admitted it would have to spend more, to replenish its tank, which is running a bit low, and investors growled. If Shell is still rated at a 20 per cent discount to BP, this is less for corporate governance reasons than because of worries that it must spend more to stand still, leaving less cash for dividends.

For investors who own BP, a switch to Shell is a big gamble ahead of the company’s November strategy presentation, but if you own neither share, Shell is a straightforward bet on recovery. Growth at BP depends on the market conferring a better valuation on TNK-BP, the joint venture with Alfa Group, a conglomerate controlled by Mikhail Fridman, the Russian oligarch. The political risk attached to this venture has grown since BP signed the deal a year ago. BP will have secured extensive guarantees and indemnities from its TNK partners, but recent events in Moscow must cast doubt on the protection Russian law provides investors.

Should investors be in oil at all? There is no doubt that Opec has opened the taps, and Saudi Arabia is more keen than ever to appease its American critics, a reason to expect a short-term dip in oil prices. But Opec’s spare capacity is very slim, the oil majors are keeping spending tight and the oil-producing countries are becoming more, not less, volatile. Expect an exciting ride.

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