Big oil earnings in focus as crude rebound boosts profits
Oil market update

What happened? Global oil prices slumped by around 7 per cent last Monday, but recovered over the week. Brent crude rose by 0.7 per cent to US$74.10 a barrel last week, after declining for three consecutive weeks. And the US Nymex price gained 0.4 per cent to US$72.07 a barrel, after falling for two weeks.

Implications: Ahead of the Aussie profit-reporting season, energy companies are expected to capitalise on the snap-back in international oil and gas benchmark prices. But balance sheet concerns remain ever-present with companies still reliant on raising more capital and selling assets to fund growth projects. Overseas, it’s a big week for oil supermajors announcing quarterly earnings results in Europe and the US.

Movements in the energy prices can affect consumer spending, and in turn, prospects for retailers.

What does it all mean?

• Crude oil prices have rallied nearly 50 per cent this year as OPEC+ and US producers have exhibited discipline in returning shuttered supplies back to the market. A ramping-up of Covid-19 vaccination rates has propelled re-openings of economies, boosting oil demand. And government data last week showed that gasoline demand has returned to normal in many of the biggest oil consuming countries.

• OPEC+ finalised an accord to gradually increase production last week, easing concerns about the potential for oversupply. And a lack of output growth from other producers suggests that the market won’t be awash with crude in the medium term. US oil services giants, Schlumberger and Baker Hughes, have both suggested that the rebound in the US shale patch will likely slow this year amid ongoing spending restraint.

• It’s going to a big week for global oil producers and their investors. The US and European oil supermajors are expected to announce increases in profits, cash and dividend payments after crude oil’s sharp recovery. European companies Total, BP and Shell are scheduled to report their earnings on Thursday with Exxon Mobil and Chevron following in the US on Friday. Exxon is expected to report just its second profit in six quarters, while Shell could lure back shareholders with the promise of buybacks.

• Ahead of the Aussie reporting season energy companies are expected to capitalise on the snap-back in international oil and gas benchmark prices. But balance sheet concerns remain ever-present with companies still reliant on capital raises and asset sales to fund growth projects. Already energy giant Santos has announced record sales revenue of US$2.04 billion over the six months to June 30, 2021. The company has lobbed a bid to merge with Papua New Guinea-focused rival Oil Search and form an A$23 billion combined entity.

• Last week the Australian national average price of unleaded petrol fell by 2.2 cents a litre to 147.8 cents per litre (c/l), according to the Australian Institute of Petroleum. But a pump price hike is underway in Melbourne, with the retail discounting cycles in both Brisbane and Sydney also on borrowed time with prices likely to lift next week. Pump prices could hit 177 cents a litre across suburbs on Australia’s East Coast.

• South-East Queensland motorists are enjoying the cheap phase of the retail unleaded petrol price cycle. Pump prices are averaging 140 cents a litre today according to real-time fuel app MotorMouth.

• Retail unleaded petrol prices are averaging near 150 cents a litre today in Sydney, but huge pricing variances continue to exist in the current cycle. The discounting cycle has been elongated during the extended lockdown with unleaded pump prices down just 14.6 cents a litre from the peak on July 1. Some servos are still charging motorists 176 cents a litre, but pump prices have fallen to near 132 cents a litre in Sydney’s South-West.

• And in Melbourne the average retail unleaded petrol price is 155.7 cents a litre today. Prices have lifted 11.5 cents a litre after bottoming at 144.2 cents a litre on July 20. Pump prices have already surged to 176.9 cents a litre in Melbourne’s Inner Eastern Suburbs today. With prices hovering around 137 cents a litre in Melbourne’s West, motorists are advised to fill up their tanks now to beat the price hike.

What do you need to know?

Weekly Oil Market

• Last week, Brent crude rose by 0.7 per cent to US$74.10 a barrel, after declining for three consecutive weeks. And the US Nymex price gained 0.4 per cent to US$72.07 a barrel, after falling for two weeks.

• The key Singapore gasoline price rose by US34 cents or 0.4 per cent to US$84.70 a barrel last week. And in Australian dollar terms, the Singapore gasoline price lifted $1.60 or 1.4 per cent to $115.00 a barrel or 72.33 cents a litre.

• Last week the national average price of unleaded petrol fell by 2.2 cents a litre to 147.8 cents per litre (c/l), according to the Australian Institute of Petroleum. The national average wholesale (TGP) petrol price was down by 0.6 cents last week to 137.6 cents per litre and stands even lower at 136.8 cents a litre today.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 149.9c/l; Melbourne 155.7c/l; Brisbane 140.1c/l; Adelaide 165.9c/l; Perth 140.8c/l; Hobart 152.2c/l; Darwin 150.1c/l and Canberra 151.1c/l.

Published by Ryan Felsman, Senior Economist, CommSec