The surge in global oil and local petrol prices has seen profit margins for the two remaining Australian refiners do likewise since March.
For that they can thank Vlad Putin’s invasion of Ukraine and the western sanctions on Russian exports and finances, as well as nervous traders and end-users of oil and petrol across the world who have tried to secure and nail down as much supply as possible.
In doing so, nervy buyers and traders have bid up the price of oil and kept it above $US100 a barrel for much of the last two and a half months.
That in turn has quickly fattened profit margins up the oil production, distribution and retail chains, leaving consumers to foot the bill and worried governments like Australia’s to try and soften the impact.
Viva Energy, which controls the Shell service station network as well as the Shell refinery near Geelong, told the ASX in a four-month update that it is sitting on massive one-off profits so far in 2022 that will almost certainly see it top 2021’s full year performance.
The bullish update saw the share prices of Viva and Ampol (the other refiner with a plant in Brisbane) rise on Thursday.
Shares in Viva and its refining rival Ampol both rose more than 3% at one stage before settling back. Viva shares actually closed 0.3% lower at $2.66 and Ampol shares ended up 1.4% at $33.13.
“Since the end of the March 2022 quarter, we have observed a significant and sustained widening of the gap between the international price of refined products and our cost of crude oil (refining margin),” Viva said in its update.
“Strong global demand for refined products, especially diesel, coupled with tightening supply as a result of refinery closures, reduced exports from China and the broader impact of sanctions on the purchase on Russian oil, are collectively driving stronger refining margins.
“Given this unique trading environment, which has continued through May to date, the Company’s actual Geelong Refining Margin (GRM) achieved in April 2022 was $US26.4 a barrel. This compares to a GRM of $US11.5 a barrel reported for March and an average of $US8.3 a barrel reported for the March quarter.
Viva said the Geelong refinery took in 3.7 million barrels of oil in April, meaning a surge in gross profits.
Viva said that with the surge in the margin its unaudited EBITDA (Replacement Cost) for the four months to the end of April was up 65% to around $A308 million from the prior year’s corresponding four-month period ended April 2021.
This, according to Viva, reflects “the current increase in refining margins together with a continued strong performance in our Retail and Commercial marketing businesses.”
Seeing Viva lifted profit on the same basis by 98% to $A484 million in the year to last December, it is likely it will top that figure by the end of July.
Viva CEO Scott Wyatt said in the update: “We have seen unprecedented movements in refining margins over this past month due to recent geo-political developments and a broader decline in global refining capacity and production.
“While this environment continues into May, oil markets remain extremely volatile, with elevated crude premia, higher shipping costs, and rising energy costs (gas and electricity), providing some longer-term headwinds.
“Although global oil markets remain extremely tight, Viva Energy has maintained reliable supply of fuel to Australian markets through a mix of locally refined product and imports.
“Our refinery at Geelong is playing an important role in reducing our reliance on overseas refineries, and we are embarking on a significant investment program to both improve fuel quality and increase local storage capacity to further support energy security in the longer term.”