Fossil giants cash in on turbulence. The five largest Western oil companies – the American Exxon Mobil and Chevron, the Anglo-Dutch Shell, the British BP and the French TotalEnergies – recorded a combined net profit of more than 196,000 million dollars (183,000 million euros) in 2022. It is double than in 2021, when prices had already begun to rise and also 50% more than what was earned in the final stretch of the raw materials supercycle, from when the previous record dated. The year of the war and the energy crisis was also the best in its history.
There have been many tailwinds that have blown in favor of these ocean liners. The exploration and production business, which is usually the most buoyant, benefited from the rise in the price of crude oil, which reached close to 130 dollars, an unprecedented level in more than a decade. And refining, traditionally less lucrative, shone in an environment of recovering demand and supply constrained by sanctions on Russia.
This avalanche of money is making itself felt on all fronts. The debt of the five major Western oil companies closed last year at less than half that of 2020, the year of the pandemic. Shareholder remuneration skyrocketed in two ways: record dividends —half of the profits were distributed— and share repurchases —also record—, which raise the value of the titles that remain in circulation.
The energy companies have been the counterpoint to the hardships of the Stock Markets since the beginning of the war. The ten US listed companies that did the best in 2022 operate in that sector. And 10% of the total benefits of the S&P500 – the main index of the US Stock Market –, according to Bloomberg data, already comes from oil and gas companies, despite accounting for only 5% of the total market value.
In this breeding ground, taxes on windfall profits have not stopped gaining traction. In recent months, the European Commission has endorsed this formula and several countries —among them Spain, Italy or the United Kingdom— have taken steps in this direction. On the other side of the Atlantic, the president of the United States, Joe Biden, dedicated a section of his speech on the State of the Union to launching a powerful invective against the oil Olympus: “They have obtained record profits in the midst of an energy crisis . It is outrageous ”, he charged while criticizing these firms for investing “too small ”a fraction of their profits to increase domestic production and keep the price of gasoline at bay. “Instead, they have chosen to use those record profits to buy back their own shares, and reward their executives and shareholders.”
In the short and medium term, the prospects for these oil colossi continue to be more than favourable. It is true that, despite the efforts of OPEC (the cartel of exporting countries), the price of crude oil has fallen by 40% from the highs of March, a few days after the first Russian troops crossed the border with Ukraine. Also that gas, another powerful source of income for them, has fallen by more than 80% in Europe since the peak in August. But the fundamentals have barely changed: the bottleneck at refineries is still there, aggravated even by recent European sanctions on Russian diesel; And demand remains strong, especially after the recent reopening of the Chinese economy and with the recession drumbeat getting quieter.
“We should not be surprised to see crude oil, again, above 100 dollars per barrel,” the CEO of TotalEnergies, Patrick Pouyanne, slipped this Wednesday in the presentation of the French company’s results. “If China’s consumption continues to increase, as expected, and the Russian supply of crude oil and derivatives continues to fall, the markets will tighten significantly,” the technicians of the Eurasia risk consultancy slip in a recent note for clients. And a tight market is the best fertilizer for the flourishing of the income statements of the oil companies.
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