Decreased Oil Prices and Decreased Crude. Now Decreased Profits?
WTI has dropped below $80 in the past week. The market forecasts for many are not looking to hot at this point. With this fall in the market, a fall in the oil demand followed. How will this effect profits? Paul Ausick does a bit of analysis and research to answer this very question.
The lowered demand estimates should moderate pump prices in the US and the rest of the world, but will certainly hit profits at major oil producers like Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), ConocoPhillips Corp. (NYSE: COP), and BP plc (NYSE: BP). The largest contributor to big profits at these companies has been high prices for crude and for gasoline. They will still earn profits at $80-$85/barrel, just not as much. A drop to $75/barrel would be closer to the bone, and anything below that for an extended period of time could spell trouble.
The integrated oil companies’ refining operations will make up some of the difference, as their input costs will fall with the price of crude. Pure downstream outfits like Valero Energy Corp. (NYSE: VLO), Tesoro Corp. (NYSE: TSO), and Western Refining Inc. (NYSE: WNR) should also see a rise in profits, but the increase will be more modest, especially if the near $20/barrel differential between WTI and Brent closes.
As for service companies and drillers like Schlumberger Ltd. (NYSE: SLB), Halliburton Co. (NYSE: HAL), Noble Corp. (NYSE: NE), and others, their prospects are still solid, due in large part to development of shale oil and gas. An oil and gas industry group projects that up to 200,000 new jobs will be created in the oil & gas patch in 2011.
For several years now the industry has been concerned about a burst of petroleum engineers reaching retirement age with no replacements available. The situation has grown even tighter now, as companies like Apache Corp. (NYSE: APA), Devon Energy Corp. (NYSE: DVN), and Chesapeake Energy Corp. (NYSE: CHK) continue to troll for new engineering talent.
Our weak economy is currently the biggest factor when thinking about oil demand and prices. If the economy begins to pick back up, so will oil. Common sense, right? Let’s hope oil gets back on the up and up soon for all of us oil enthusiasts out there.
Quotes taken from report by Paul Ausick, Read the entire article here.
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