Major oil companies are back in profit after a sharp drop in profits during 2020 as a result of quarantines to contain the spread of COVID-19.
Oil giant Exxon reported first-quarter earnings of $2.7 billion, after a sharp drop in 2020 and being dropped from the S&P 500 financial index for underperformance.
Chevron reported profits of $1.4 billion, while BP reported profits of $4.7 billion. The Dutch firm Royal Dutch Shell reported revenues of $3.2 billion, while Total SE reported revenues of $3 billion.
“That recovery, which we had anticipated happening at some point in time, is happening sooner than we anticipated,” said Exxon CEO Darren Woods in an interview where he also explained that: “As economies are reopening and rebounding quicker, in some places, than expected, we are seeing a demand response.”
The pandemic was especially strong for oil companies, which experienced serious drops in revenues due to closures, decreased international trade, and border closures in many countries.
Many oil companies opted to diversify and invest in renewable energies, as was the case of Shell, BP, and Total SE. The only oil company that did not consider diversifying into renewable energies was precisely Exxon, which suffered one of the biggest falls during 2020, reporting losses of over $22 billion.
In the United States, the freeze that Texas experienced also boosted the profits of oil companies, as the demand for fuel increased to cover the energy deficit that the grid had after the first few days. Chevron alone increased its profits by $5 million as a result of the freeze.
With the increase in demand also came an increase in the price of a barrel of oil, which closed at $65 a barrel on Thursday, after a steady six-week increase. Part of the increase in the price of a barrel of oil was due to OPEC’s decision at the end of last year to retain oil reserves to put upward pressure on the price.
The price of oil companies’ shares has behaved at the same pace as the rise in the price of a barrel. While the price of a barrel of oil recovered 80 % of its pre-pandemic value, the shares of oil companies grew by an average of 65 %. Yet oil company stock prices continue to sell below their pre-pandemic prices.
Although there is a general mood of optimism about the recovery of oil demand, international markets are concerned about the new increase of Covid-19 cases in Latin America and India, where the situation has forced local authorities to call for new quarantines. The slowdown in economic activity in India could push oil demand down by as much as $900,000 barrels per day.
Some analysts doubt that oil companies will be able to fully recover to their pre-pandemic performance, as policy in the United States has become very antagonistic towards fossil fuels.
President Joe Biden has pledged to halve emission levels by 2030, which implies a policy that discourages the use of fossil fuels for power generation, as well as a boost to the electric car industry.