LONDON (CNNfn) - It's hurting motorists and manufacturers, but at least somebody is benefiting from soaring crude oil prices: earnings at oil producers are positively brimming over.|
To date BP Amoco PLC (BP-), Royal Dutch/Shell Group, Exxon Mobil Corp. (XON: Research, Estimates), Chevron Corp. (CHV: Research, Estimates) and TotalFina Elf SA (PFP) have all reported that second-quarter profits doubled, and all beat analysts' expectations.
The oil titans are cashing in on the surge in the price of their product that has pushed it to three times its early-1999 level. Corporate earnings reports for the second quarter showed that the average selling price was $11 a barrel higher than during the same period of last year.
Crude oil prices hovered around $30 a barrel for most of the April-to-June quarter, and have recently taken off again, shooting to 10-year highs this week - levels not seen since Iraq invaded neighbor Kuwait in 1990.
Exxon Mobil, the world's biggest oil company, reported in July that its second-quarter profit doubled to $4.15 billion, while global No. 2 BP Amoco last month posted a jump of 168 percent to $3.67 billion for the same period.
"The companies will be the first to admit that second-quarter profits are an aberration," Alain Sinclair, an analyst at Charterhouse Securities, told CNNfn.com. "Over the long haul, especially the last 19 to 20 years, there has been so much oil volatility."
OPEC reluctant to flood market
Oil companies base their internal earnings forecasts on an average oil price of about $15 to $16 a barrel, Sinclair added. "Anything (above this) that happens in the market is a bonus, so in the second quarter prices averaged $27 a barrel, but in the second half of 1998 the price of a barrel was on average about $12."
As for the prospect of increased production from OPEC to ease the price of crude, Sinclair said the oil cartel's reluctance to open the floodgates is understandable.
"OPEC increased production in 1997 to meet demand, only to be met with an Asian meltdown," Sinclair said. "It doesn't want to repeat that."
Brent crude oil for October delivery opened sharply lower Friday, dropping 75 cents to $33.80 a barrel after the contract closed to a new 10-year high Thursday.
Oil prices have surged 37 percent since the beginning of this year, while shares in BP Amoco jumped almost 50 percent to 654 pence, from a low of 444.5 pence in mid-February at the peak of investors' mania for high-tech stock. Shell Transport & Trading Co. (SHEL), the London-based co-owner of Royal Dutch/Shell, leapt 30 percent and Exxon Mobil rose 15.3 percent over the same period.
Oil ministers from members of the Organization of Petroleum Exporting Countries meets in Vienna on Sunday, under severe pressure from consuming nations to ease fuel bills and temper inflationary pressures.
Analysts, however, say they still expect the crude prices to be around $27 a barrel for the foreseeable future, enough to bolster producers' earnings for rest of the year.
On the flipside, chemicals company DuPont Co. (DD: Research, Estimates) warned Thursday that higher-than-expected energy and raw material costs would keep its earnings below analysts' forecasts this year and next. DuPont shares tumbled 11 percent, or $5.19 to close at $41.81 in
New York on Thursday. Shares in its European rivals also plunged.
French tire-maker Michelin warned on Wednesday that first-half operating profit would be below its 1999. The Clermont-Ferrand, France-based company said currency fluctuations had increased European raw material costs.
The single currency, which has fallen 26 percent against the dollar since it came into being in January 1999, hit an all-time low of 86.34 U.S. cents Thursday morning. Depreciation of the euro and accelerating oil prices means the company's cost of acquiring raw materials soar.
Crude oil is the raw material for the production of chemicals, tires, plastics and many other items.