Economic unrest due to American tariff disputes results in a $4 billion drop in earnings for Britain's leading oil companies.
Big Oil's Profit Plunge:
The major oil companies in the UK, BP and Shell, are bracing themselves for hefty profit losses, predicted to amount to around $4 billion next week. This precipitous drop is a direct result of the global energy market turmoil brought on by Donald Trump's tariff chaos.
BP's earnings are expected to nosedive to approximately $1.6 billion in the first quarter of 2025, a stark contrast from the $2.7 billion they garnered in the same period the previous year. The company will release its quarterly financial report on Tuesday.
Similarly, Shell's earnings are forecast to plummet to $5.1 billion in Q1 of 2025, down from $7.7 billion in the same period of 2024. Their results for the quarter are scheduled for release on Friday, as per estimates from Refinitiv.
The gloomy financial outlook for these oil giants stems from a steep decline in global oil prices, primarily due to apprehensions about the slowdown in demand from several nations, particularly China, a significant oil consumer.
Curiously Enough:
- The price of Brent crude, the international benchmark, has dropped approximately 12% so far this year and is trading around $67 a barrel.
- Prices started to slide from January onwards but plummeted sharply earlier this month following Trump's implementation of a wave of tariff measures during his 'liberation day' announcements. These measures were aimed at reordering global trade and sparked fears of widespread disruption to global supply chains, which in turn, could reduce shipping and travel, thereby denting fuel demand.
- The OPEC+ cartel of oil-rich countries has exacerbated the situation by deciding to increase the amount of crude oil extracted from their wells. This unexpected surge in supply is contributing to a glut in the market.
For BP, this potential headache comes at a challenging time as it strives to refocus its business back on fossil fuels. The company is reversing a shift towards renewable energy that was spearheaded by its former CEO, Bernard Looney. BP's current CEO, Murray Auchincloss, is under intense pressure from activist investors, including Elliott Management, to boost performance, a task that might become even more daunting in the context of cheaper oil.
Meanwhile, Shell is grappling with its own challenges as it attempts to ramp up fossil fuel production under CEO Wael Sawan. The company recently revised its oil and gas production forecast for the first quarter, citing unexpected maintenance work and cyclones that impacted output from some of its wells. Sawan has spearheaded Shell's own transition towards oil and gas, slashing the company's spending on renewable energy with the aim of bolstering its value and competing with US rivals such as Chevron and Exxon Mobil.
References:
- A. Milne, "Shell earnings, margin predictions take hit due to energy market turmoil", Reuters, 26 April 2022, https://www.reuters.com/business/energy/shell-earnings-margin-predictions-take-hit-due-energy-market-turmoil-202 262022/
- J. Plumb, "What the fall in BP's share price means for UK investors", This is Money, 13 November 2022, https://www.thisismoney.co.uk/money/news/article-11380617/What-fall-BP-s-share-price-means-UK-investors.html
- Investors are closely watching BP's quarterly financial report on Tuesday as the company braces for a $1.6 billion profit loss, planned for the first quarter of 2025, a significant drop from the previous year.
- Shell's earnings are also expected to plummet to $5.1 billion in Q1 of 2025, a clear indication of the ongoing energy market turmoil affecting major oil companies, with their quarterly results to be released on Friday.
- The steep decline in global oil prices and apprehensions about the slowdown in demand from nations like China have contributed to the predicted losses for BP and Shell.
- Brent crude, the international benchmark, has dropped approximately 12% this year, hitting $67 a barrel, as a result of political measures, supply chain disruptions, and OPEC+'s decision to increase oil extraction, creating a glut in the market.
- In the general-news, Elliott Management is putting pressure on BP's current CEO, Murray Auchincloss, to boost performance amidst cheaper oil prices, while Shell's CEO, Wael Sawan, is strategizing to increase fossil fuel production and compete with industry rivals such as Exxon Mobil.
- Industries related to finance, business, and politics are highlighting these developments in oil companies like BP and Shell, as they navigate through turbulent market conditions and make necessary measures to adapt to changing energy demands.
