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Felicity Bradstock

Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK.

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Big Oil Set To Return To Profit In 2021

Vitol, Shell and Exxon are all expected to announce profits in Q1 2021 following a turbulent 2020. The three companies are profiting from increased oil demand and a rise in oil prices, giving analysts hope for a strong year in oil and gas.  Shell announced this week that it expects to make its first profit from oil production in the first quarter of 2021 since the beginning of the Covid-19 pandemic. The company’s upstream unit, which mainly manages crude exploration and production, has gained from the surge in oil prices over the past few months. 

Shell’s statement comes despite targets being hindered by the winter storm that hit Texas in February, decreasing the company’s production by around 20,000 bpd of oil in the first three months of the year, reducing its expected earnings by around $200 million.

Shell was hit hard as oil demand decreased in Q2 of 2020, despite steadily picking up again in the second half of the year before stricter pandemic restrictions were reintroduced. Although Shell remained stable overall, its upstream unit suffered a loss of $1.5 billion in the second quarter of 2020.

BP Plc, another company that was struck hard by the pandemic, announced this week that it has reduced its net debt to $35 billion a year earlier than anticipated, meaning the company can recommence share buybacks. 

Related: Saudi Arabia Goes All-In on Hydrogen

Exxon Mobil Corp, the largest oil producer in the U.S., is also expected to profit from the increase in demand and oil prices, to earn an estimated $2.55 billion in profit in the first quarter of 2021. The company’s stock has been steadily increasing since the beginning of the year, jumping from $41.50 at the beginning of January to $56.71 this Wednesday. 

Exxon experienced consecutive quarterly losses through 2020, owing to the decrease in demand and low oil prices, leading it to reduce operating costs in response to the losses. Company stocks fell to a yearly low of $32.62 in October, before sharply picking up towards the end of the year. 

The February storm in Texas also throttled Exxon, which experienced an estimated $800 million in damages, as power cuts to refineries and chemical plants led the company to curb its oil and gas supply. Exxon is expected to announce its first quarter profits by the end of April. 

Finally, Swiss oil trader Vitol has announced that despite a fall in oil production levels last year, it achieved a profit through successful trading plays. While the company has not disclosed its 2020 profits, Bloomberg estimates it to be around $3 billion

This comes despite the company’s oil production falling from 8 million bpd oil in 2019 to a 7.1 bpd average in 2020.

Vitol CEO Russell Hardy stated, “We continue to believe that demand for oil will not peak for another decade, but nonetheless we must position our business for a lower emissions world”.

To date, Vitol has invested around $1 billion in green projects, as part of the expansion of its renewable energy portfolio. The company has been primarily focusing on wind, solar and biogas projects across the U.S., which strongly support President Biden’s plan to increase renewable energy production over the next decade. 

Despite the global industry appearing to falter under the pandemic conditions of 2020, oil majors are steadily regaining their foothold as global oil demand and oil prices increase. 

By Felicity Bradstock for Oilprice.com

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  • Arch Region on April 12 2021 said:
    Oil set to return to profit in 2021 but for how long?

    Initially the cry was we are running out of oil. But pick oil never materialized not even over the distant horizon.

    Then the cry became pick demand. Pick demand is closer but still not close enough for comfort.

    Suddenly it became clear there is a third factor at work that may end the oil business before the end of this decade is over, affordability.

    There are three factors affecting affordability:
    1) The graduate loss of market share to clean renewables will increasingly stress the entire system that depends on colosal investments that require enormous scale of operation to absorb the risk of the entire operation. There is a brick wall looming out there that cannot be scaled over in terms of market share loss, triggering a sudden disorderly retreat;
    2) At the same time to the continual market loss, the price of clean renewables will continue becoming more and more economical. Already in many markets health preserving renewables are already less expensive. Price competition is another threat casting a long shadow over the fossil fuel industry;
    3) Last but not least are the health costs. How long will people continue tolaring damaging their children's lungs when there are alternatives that do not cause air pollution? Regulation will surely catch up and demand that health costs are included in the price of oil.

    I did not even include Global Climate Change. I personally do not see how fossil fuels that clearly are plentiful for many decades to come in the future, and although demand for energy will increase even more in the future, can avoid the affordability question that may trigger a gigantic avalanche that may bury the entire fossil fuel industry in very short order.

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