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Petroleum

Oil Majors' Earnings Expected to Surge as Crude Prices Soar

Strategic Insights

— 1 min read

Oil majors' first-quarter earnings are expected to surge to levels 60% to 1,300% above their year-ago levels due to exorbitant crude oil prices and resurgent refining margins. As global crude oil prices and global refining and petrochemical margins have improved significantly since the first quarter of 1999, when they were depressed, analysts expect a 10%-20% improvement over already strong results in the fourth quarter of 1999. The surge in crude oil prices, which have averaged over $30/bbl in March, is the primary driver of the expected earnings increase.

Key Takeaways:

  • Analysts expect oil majors' first-quarter earnings to surge 60% to 1,300% above their year-ago levels.
  • The primary driver of the expected earnings increase is the surge in crude oil prices, which have averaged over $30/bbl in March.
  • Refining margins have also improved significantly, with the huge 7 million b/d US Gulf Coast market experiencing a recent surge to $6/bbl, a level normally reserved for the lucrative US West Coast market.
  • Analysts forecast profit increases of 70%-80% for Exxon Mobil, Shell, and 220% for BP Amoco due to merger-related cost-cutting efforts and larger weighting toward the upstream.
  • Smaller US players like Phillips, USX-Marathon, Amerada Hess, and Murphy are expected to see significant earnings increases, with Phillips' profits expected to rise more than 1,300% and Amerada Hess' profits expected to increase by more than 300%.
  • The cash generated by high crude oil prices is being spent on share buybacks, debt repayment, and acquisitions rather than increased investment in exploration and development projects.

Statistics:

  • Global crude oil prices averaged $27.15/barrel in January 2000, $29.44/bbl in February 2000, and have averaged about $31/bbl in March 2000.
  • The price of US benchmark West Texas Intermediate (WTI) has averaged more than twice its year-ago average of $13.13/bbl.
  • Refining margins in the huge 7 million b/d US Gulf Coast market recently hit $6/bbl.
  • Analysts forecast profit increases of 70%-80% for Exxon Mobil and Shell, and 220% for BP Amoco.
  • The high costs involved with operating in mature regions helped wipe out millions of dollars in potential upstream profits for smaller US players like Phillips, USX-Marathon, Amerada Hess, and Murphy last year.

Sources:

  • [No sources cited in the original text]

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