China’s oil demand could push Exxon and Chevron’s profits further
Financial markets were stunned in April 2020 when the oil price turned negative for the first time. As demand plummeted during the first COVID lockdown, the main US oil benchmark price dropped to minus $30 (minus €28) a barrel.
Pessimists said prices would never recover. They warned that the days of big oil were numbered and the end of the hydrocarbon era was near. Although they are correct about the direction of travel, their timing was way off.
The same five Western oil giants – ExxonMobil, Shell, Chevron, BP and Total – that posted huge losses in 2020, have just collectively announced more than $196 billion in annual profits, helped by a surge in demand for oil caused by the war in Ukraine and the post-pandemic recovery.
For much of the first half of last year, the price of oil surpassed $100, and in March, Brent crude reached $139 a barrel. For the rest of the year, it stayed between $70 and $95 – far more than the $40 to $50 it takes big oil companies to turn a profit.
Exxon’s profit in 2022 was a record not only for itself, but for any American or European oil giant. BP’s profit of $28 billion was the highest in its 114-year history, while Shell earned more than double the profit of the previous year.
In addition to rising oil prices, falling debt levels helped major oil companies increase capital spending on fossil fuel production as governments prioritized energy security due to the supply shock caused by Western sanctions on Moscow and the Kremlin’s inconsistent energy supply to Europe after the invasion of Ukraine.
BP CEO Bernard Looney was denounced by the green lobby when he said he wanted to “reduce” some of the energy giant’s investments in renewable energy due to the risk of oil and gas supply shortages causing more volatility in prices.
Contempt for ‘dirty’ dairy cows
Public anger at announcements of record profits by big oil is visceral, and not just because of the urgent push for green energy.
Over the past year, households and businesses have been hit hard by skyrocketing utility bills and the price of gasoline. While many governments have tried to limit the damage with subsidies, many see Big Oil as profiting from public misery, so requests for windfall taxes on profits are growing.
The UK and the European Union have already imposed temporary taxes on profits from the oil and gas sector. Politicians and unions called for them to be increased. In their earnings updates, Shell, Total and BP revealed that the new taxes would each cost about $2 billion – about 5% to 8% of profits.
ExxonMobil, meanwhile, is suing the EU to get the bloc to scrap its unexpected new tax. The biggest US oil company argues that Brussels exceeded its authority by imposing the tax, which it says is normally a function of national governments.
Exxon spokesman Casey Norton said in December that the tax would “undermine investor confidence, discourage investment and increase dependence on imported energy.”
Source: DW
Lori Barajas is an accomplished journalist, known for her insightful and thought-provoking writing on economy. She currently works as a writer at 247 news reel. With a passion for understanding the economy, Lori’s writing delves deep into the financial issues that matter most, providing readers with a unique perspective on current events.