Strong 1st Quarter Forecast for Oil Refiners, Marketers
Strong gains in petrochemicals and refining and marketing operations will boost the oil industry’s first-quarter profit by 40% to 50% from a year ago, analysts predicted Tuesday.
“It’s going to be a great quarter,” said Richard Pzena, oil analyst at Sanford C. Bernstein & Co.
Profit margins have swelled in the downstream side of the business, where crude oil and natural gas are refined into gasoline and used in petrochemical plants, which have been running at capacity.
Demand at the gasoline pump also has been strong, keeping inventories low and prices firm.
Pzena estimated that petrochemical profit will rise 60% from a year ago as demand continues to overshadow the industry’s supply.
Analysts recently raised first-quarter earnings estimates for Phillips Petroleum Co. because of its booming chemical business.
“Earnings in general will surprise people on the high side,” said Paul Ting, an analyst at Oppenheimer & Co.
Falling prices for crude oil can easily cut earnings in the upstream side of the business where oil is pumped out of the ground. The benchmark West Texas International crude oil averaged about $16 a barrel in the first quarter, just slightly below a year ago’s $17.25 level.
“The upstream will be hurt by lower crude oil prices and a warm winter in Europe, which depressed natural gas prices,” said George Friesen, an analyst at Dean Witter Reynolds.
But lower crude prices cut the costs faced by refineries while their end product prices remained relatively stable, pointing to wider downstream profit margins in the quarter.
Analysts see the biggest gains among the majors such as Mobil, Chevron, Exxon and Texaco, which have big refining and marketing operations or strong chemicals operations.
Pzena estimated that domestic refining profit amounted to about $2 a barrel in the first quarter, compared to $1.35 a year ago.
Even in Europe, where refining profit continues to be pressured by overcapacity, downstream profit should amount to about 35 cents a barrel against 25 cents last year, Pzena said.
Atlantic Richfield, benefiting from a strong West Coast market for refined products, will also record a pretax profit of $235 million from its sale of Britoil PLC shares. Analysts see the gain at about 65 cents per share after taxes.
