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The ‘Big Oil’ and market volatilities

By Sony Atumah

After three tough years of being in the doldrums oil super majors appear to be finding their operational rhythms and getting back to normality. Since July 2014 global oil prices have been subjected to volatility and geopolitical uncertainty left many companies battling for cash.

As oil prices tumbled investors’ gambled in so many ways to remain afloat in the roller coaster business. With many oil dependent nations trembling, the first-world industrial economies also have had an unusually large importation.

Oil Pipe

Although oil is almost steadying in the 50s and inching towards the 60 dollar mark per barrel, some believe that perceived unseen hands rather than companies are determining the price of crude.

Other analysts believe that the forces of demand and supply are at play even as the Americans and their shale oil hold the aces in the price war and market share control. The late 2016 OPEC and non OPEC attempt to put an end to global oversupply has been threatened by the United States shale production.

The uncertainties have caused many oil companies to change strategies. Oil companies reduced spending during the slump, thus making them appear profitable now that prices go up. Some sold their assets, others cut operating costs, downsized staff members, some mergers and acquisitions for cash generation. While current price levels above US$50 per barrel are still far below mid-2014 prices of over $100, oil companies have managed to weather the storm.

The Big Oil otherwise known as super majors seems to have the capacity to influence policies, politics and economic power. They have the technology, refining capacity, access to finance and hedges to drive investments. In the United States the Big Oil are associated with fossil fuels lobby.

The super majors are ExxonMobil (United States), Royal Dutch Shell (Netherlands and United Kingdom), BP (United Kingdom), Chevron (United States), Total SA (France), ENI Spa (Italy), and Conoco Phillips (United States). The super majors as they are today are the creation of volatilities in the prices of oil. Their   emergence started in the late 1990s when oil companies started to merge to enhance economies of scale, hedge against price volatility, and reduce large cash reserves through reinvestment.

In 1998 BP acquired Amoco and with Arco in 2000.  Exxon merged with Mobil to form ExxonMobil in 1999. Total merged with Petrofina and also with Elf Aquitaine in 2000 to form Total S.A. In 2001, Chevron acquired Texaco while in 2002 Conoco merged with Phillips to form ConocoPhillips.   Shell’s recent purchase of BG of the UK has made it the world’s second-biggest public traded oil company. The assets acquired from the merger with the British gas producer made Shell the largest producer of liquefied natural gas in the world.

Severally Big Oil third quarter, Q3, 2017 profits postings depict healthy finance.  Bloomberg last week reported that Shell’s earnings are the latest sign that major energy producers are getting back to business after three years of volatility.

The Europe largest energy company generated $28.38 billion of cash flow from operations in the first nine months of 2017.  Shell reported a net result of US$4.2 billion for the third quarter, up by 47 percent on the year. Shell’s Chief Executive Officer, CEO, Ben Van Beurden who presented his company’s third-quarter results spelled out his long-term goal of overtaking ExxonMobil to become the best-performing oil super major. Shell aims to surpass its larger U.S. rival. Though its US$263 billion market valuation is 26 percent lower than Exxon Mobil’s, that gap has narrowed in the past year.

As of 2011 ExxonMobil ranked first among the super majors measured by market capitalization, cash flow and profits. ExxonMobil is the world’s biggest oil producer by market value. From ExxonMobil secured a 50-percent rise in its third quarter, Q3 net profit, to US$3.97 billion, from US$2.65 billion a year ago. The company attributed the improvement to higher oil prices and stronger performance across business operations.

BP reported a net profit of US$1.9 billion for the third quarter of the year, up more than twofold on the year, with a stronger performance from both its upstream and downstream business divisions.

Chevron also reported a substantial improvement in net results, at 53 percent, to US$1.95 billion, with the company saying that in addition to higher oil prices it reaped the benefits of an asset sale programme. French Total booked a 29-percent increase in Q3 net profits, to US$2.67 billion from cost cuts, higher oil production and higher oil prices.

The Big Oil or super majors have had higher oil prices in recent months. The American benchmark, West Texas Intermediate (WTI) crude fell below US$30 in February 2016. Throughout the downturn, the super major oil companies have had refining and petrochemical profits to offset some of their losses to reinforce recoveries. Some analysts also warned that despite the upbeat sentiments, the market was overbought and needs to be slowed down as it is not yet uhuru.


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