High Oil Prices Set Supermajors Up For A Promising Earnings Season

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By Tsvetana Paraskova

The world’s largest oil companies are set to report next month another set of strong quarterly earnings amid significantly higher oil prices and global oil demand in the second quarter compared to the same period last year.  Europe’s largest oil firms—Shell (-1.63%), BP (-1.59%), TotalEnergies (-0.60%), Eni (-1.38%), and Repsol (-2.07%)—had already seen solid earnings for the first quarter as lockdowns eased and oil price rose with a tightening market. For the second quarter, results would be higher, and certainly much higher than for the second quarter of 2020.

Brent Crude prices averaged nearly $65 per barrel in April 2021 and $68.53 in May 2021, with prices in June holding on to above $70 so far. To compare, the average price of Brent was just $18.38 a barrel in April 2020, $29.38 in May, and just over $40 in June 2020.

Out of Europe’s top five oil companies, BP and TotalEnergies reported Q1 2021 earnings higher than those for Q1 2019 in pre-pandemic times, although revenues at all firms dropped significantly compared to the pre-crisis levels.

Income at Shell, BP, TotalEnergies, Eni, and Repsol nearly returned to pre-pandemic levels, thanks to dramatically higher oil prices, and further upsides in earnings are on the horizon with this quarter’s oil price rally, data and analytics company GlobalData said in a new report on Tuesday.

“The group began to see improved financial performance towards the end of 2020, but Q1 2021 was particularly strong compared to recent quarters. We’ll likely see a continuation of strong performances in Q2 as prices remain elevated and capital discipline measures remain in place,” said Daniel Rogers, Senior Oil and Gas Analyst at GlobalData.

According to GlobalData’s analysis of the firms’ earnings for Q1, net income levels remained robust compared to 2019 levels despite significantly weaker revenues.

Some examples worth noting include not only higher earnings, but also some oil majors increasing returns to shareholders thanks to the rising income.

BP is resuming share buybacks this quarter after more than tripling its first-quarter earnings from a year ago on the back of rising oil prices and “exceptional gas marketing and trading performance.”

Shell reported a surge in adjusted earnings for the first quarter and lifted its dividend by 4 percent as higher oil and gas prices and demand drove profits higher.

TotalEnergies said its adjusted net income of $3 billion for Q1 exceeded its earnings from the pre-crisis Q1 2019, thanks to higher oil and gas prices and the strategy to grow liquefied natural gas (LNG) and renewables.

This year’s financial performance is in stark contrast with last year’s carnage which saw losses, billions of U.S. dollars of write-downs, and cuts to dividends for some majors. ExxonMobil (-0.36%) even reported four consecutive quarters of losses for all quarters in 2020.

Big Oil booked some of their largest quarterly losses, laid off tens of thousands of workers, and most European majors cut their dividends—in Shell’s case, the first cut since World War II.

But this year, thanks to much higher oil prices, earnings started pouring in as early as in the first quarter.

Robust profits are expected for Q2, too, in light of surging cash flows because of higher oil prices and continued strict capital discipline and cost measures.

Refining margins in the downstream businesses, however, remain weak, although not as weak as last year when mobility was severely restricted around the world. Refining margins remain low despite improvements in the first quarter this year, GlobalData’s Rogers noted.

Still, the largest international oil companies are set to benefit in 2021 from recovering global oil demand and the rise in oil prices.

Crude Oil

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