BIG OIL AND THE PANDEMIC, WHERE IS THE INDUSTRY AND WHAT NEXT? - PETRACO OIL

Petraco is one of the oldest independent trading companies in the world, priding itself on great expertise and strong connections with its customers. Petraco Oil is committed to acting responsibly, aiming to make a positive impact beyond everyday trading.

Petraco Oil Company was founded in 1972 in Milan, Italy, by Branko Srenger. It has since grown to gain a significant international presence as well as an excellent reputation in the oil industry. Over the many years of its existence, Petraco Oil Company SA has developed a diverse, global customer base and an extensive network with strong long term relationships.

The Position of Big Oil in this Earnings Season

The rebounding of share prices and rising oil benchmarks are the two things certainly not forgotten by Big Oil majors. The world’s biggest oil companies are slowly able to regain some ground under their feet, largely due to the help of OPEC+ and Big Pharma.

In 2020, Big Oil had become unprofitable during the historical drop in demand brought about by the coronavirus pandemic and thus had to write down tens of billions of dollars’ worth of assets. Alone BP’s write-downs added up to $17.5 billion, while Exxon, which opposed write-downs until the ultimate possible moment, stated last November it will book write-downs in its fourth quarter reports, amounting between $17 and $20 billion. While share prices of several oil companies have increased, including BP’s and Exxon’s, several major trading companies, including Vitol and Gunvor, recently indicated they do not expect peak demand to be reached until the next decade.

The Petraco Group has also offered a cautiously optimistic outlook on the year 2021. Nevertheless, the above mentioned write-downs have already been factored in by the market, thus the reports by the majors should not have too great a negative effect on the prices of their shares. The share prices have seen a nice recovery since further developments have been made regarding the Covid-19 vaccines and the ongoing OPEC+ cuts, however they have still not reached being the go-to they once were; arguably they will remain so for quite a long while.

While oil prices tanked last year under the strain of the pandemic, to respond to the crisis, Big Oil relied on cost cuts and spending revisions. Herewith, spending plans remain cautious, and they are likely to stay so until the world comes back to some sort of normality, expected by the banks to happen by the end of this year. However, some super majors may still surprise with plans for the current year, providing they feel bold enough with Brent above $50 a barrel.

Finally, emission-cutting plans will be leading this earnings season, as they do in every industry now, as the world has commenced with the quest of reducing its carbon footprint. This in turn means that diversification into new, greener business areas, if done right, could boost stock prices even more. Trading houses, including Mercuria, Vitol, Gunvor and Petraco have also put forward their renewed commitment to sustainability as growing global demand for energy is increasingly correlated with a low-carbon future.

Simultaneously, asset streamlining, and inorganic growth will also be important in Big Oil’s key business areas of oil and gas production and processing. At the end of the day not all Big Oil shareholders are the ESG kind, regardless of activist groups on a mission to pressure the biggest polluters towards a cleaner future, there remain many who hold Big Oil, as they believe oil and gas will remain vital for our life and planet for decades to come.

When asked about the future of oil and gas, a spokesperson for Petraco Group stated that ‘Working towards a ‘greener oil’ future is a big priority for us. Petraco is committed to acting responsibly, aiming to make a positive impact beyond everyday trading."

While some oil-producing nations, heavily dependent on the absolute price of crude, have suffered greatly during the pandemic and have continued a general sentiment of pessimism when forecasting profits for the upcoming year, the scenario is different with that presented by oil traders. Several traders including Vitol, Glencore and the Petraco Group are less exposed to price volatility. The contango structure in futures markets has been beneficial to traders.

Demand recovery hinges on vaccines: Petraco Oil Company is cautiously optimistic - With lockdowns continuing worldwide, the energy industry has been monitoring the availability of vaccines closely.

At the Gulf Intelligence Global UAE Energy Forum, several traders offered cautious optimism in terms of upcoming energy demand. Commodity traders like Vitol stated they expected overall oil demand to rise by 6mn b/d this year, only partially reversing a 9mn b/d slump in demand last year. Jet fuel demand has been hit particularly hard by the Covid-19 pandemic, with border closures, travel restrictions and tight lockdown measures. Although the start of mass vaccination programmes across different countries has undoubtedly brought hope to several market players across the aviation industry, the International Air Travel Association (IATA) said in November 2020 that it does not expect global air passenger numbers to return to 2019 levels until 2024 at the earliest. IATA expects 2.8bn passengers to travel in 2021, 1bn more than in 2020 but 1.7bn fewer than in 2019.

OPEC+ also took an extremely cautious view to energy demand early last month. Saudi Arabia alone announced that it would make a 1mn b/d voluntary crude output cut for Q1 2021. The cut is already on top of Saudi Arabia’s output commitment of 9.119mn b/d under the latest OPEC+ agreement and it will mean it is currently producing as little as 8.119mn b/d since the start of February. The UAE instead offered slight optimism, expecting global oil demand to return to pre-pandemic levels by the end of the year or early 2022 at the latest, citing OPEC+ efforts as the key determining factor. This was a markedly different assessment than that given by the Nigerian state-owned oil company NNPC, which expressed doubts that oil demand would recover to pre-Covid levels before the end of 2022.

Despite this, a difference needs to be highlighted between the financial impacts felt by oil producers and those by commodity traders. While some oil-producing nations, heavily dependent on the absolute price of crude, have suffered greatly during the pandemic and have continued a general sentiment of pessimism when forecasting profits for the upcoming year, the scenario is different with that presented by oil traders. Several traders including Vitol, Glencore and the Petraco Group are less exposed to price volatility. The contango structure in futures markets has been beneficial to traders during 2020.

When asked about their view on global oil demand, a spokesperson for Petraco Oil Company stated that ‘ultimately it all goes down to how many people become immunised against Covid-19 and by when. Realistically we do not see a significant portion of society being vaccinated before the first half of 2021 and we can therefore only expect some rebound in global oil demand in the latter part of the year’.

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