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Oil majors’ earnings improve on rising prices, demand

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Optimistic expectations about demand from OPEC+ and rebalancing fuel inventories in the United States have aided the steady rise in oil prices, as well as recovery of many oil majors to profitability in the first quarter.

Contrary to the experience last year when oil prices tanked, Shell, Total, ExxonMobil and Chevron have reported a return to profitability in the first quarter, bolstered by a significant jump in oil prices.

The results point to a much-improved demand outlook compared with last year, when oil prices tumbled midway through the first quarter as the coronavirus crisis shuttered large parts of the economy.

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Last week, OPEC+ forecast that oil demand this year would increase by 5.95 million bpd. This was an upward revision of 70,000 bpd from an earlier projection, and this position injected optimism in traders.

Total at the weekend, reported a strong first-quarter recovery in its upstream oil and gas business, with higher prices leading to almost triple the level of adjusted operating profit in the segment compared to a year ago, but also noted continued market volatility and “very poor” refining margins.

The French major forecast its oil and gas production would remain stable in 2021 compared with 2020 levels, even though first-quarter hydrocarbon production was down 7% on the year at 2.86 million b/d of oil equivalent, within which liquids output fell 11% to 1.51 million b/d.

The fall in upstream output was due to reductions under the OPEC+ agreement, which crimped volumes from Kazakhstan, Nigeria and the UAE, as well as unplanned Norwegian maintenance, Total said.

For Shell, it described its Q1 results as a “strong start” to 2021, after its earnings rose to $3.2bn, up from $393m in the final quarter of 2020.

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“Earnings strengthened primarily due to higher oil prices as the economy recovers,” said Chevron Chief Executive Mike Wirth. As a result of the improvement in trading, Shell confirmed it would increase its quarterly dividend by 4.0 per cent.

ExxonMobil and Chevron however face weakness in their downstream business amid tepid demand for petroleum products, especially jet fuel. ExxonMobil, which reported losses in all four quarters in 2020, reported profits of $2.7 billion in the first quarter. Revenues rose 5.3 percent to $59.1 billion.

The company said its average price for crude oil sold rose 42 percent compared with the fourth quarter, while natural gas prices rose by 33 percent.
Conditions in the downstream business improved from the fourth quarter, “but remained below 10-year lows driven by market oversupply and high product inventory levels,” ExxonMobil said.

But the company saw heady conditions in its chemical business, where profits surged due to “continued strong demand, global shipping constraints and ongoing supply disruptions, particularly in North America.”

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