Oil refiner and distributor Caltex suffered a steep fall in March-quarter earnings after the pricing cycle moved against it.
The company revealed at yesterday’s annual meeting (http://www.caltex.com.au/Media%20Items/2016%20AGM%20Addresses%20and%20Presentation.pdf) that higher sales volumes of petrol, diesel and other products failed to offset the slide in refiner margins.
The refiner margin in the quarter fell to $US10.65 a barrel from $US15.65 a year earlier.
That is a normal part of the pricing cycle in times of rapid price rises and falls – oil companies make most of their products from the ‘downstream’ (refining/manufacturing, distribution and retailing) when oil prices suffer the 60% or so slide we have seen since mid 2014.
(Oil companies with producing fields make their money from the ‘upstream’ businesses when prices are high or rise quickly.)
But the oil price slide bottomed out in late January and early February and has surged 50% or more since then and that has seen the pricing cycle move against Caltex, aided by the sell-off in the US dollar (and a small rise in the value of the Aussie currency).
As a result, Caltex said its March-quarter net profit fell to $114 million after Caltex booked an inventory loss of $37 million. The prior year’s $178 million profit was boosted by a $12 million inventory gain.
But Caltex uses a replacement cost of sales basis of accounting (as do many other oil companies), and that saw first quarter profit after tax was $151 million, down from $162 million for the same quarter in 2015.
Earnings before interest and tax rose 28% to $178 million.
Caltex said underlying earnings of its supply and marketing arm rose 7% after taking into account pricing lags and the squeeze on retail fuel margins.
The company said it saw a 2% rise in sales volumes to 4 billion litres in the March quarter, recouping part of the 5% fall n volumes recorded in 2015.
The company reported higher sales in higher-margin products such as premium-grade fuels along with higher sales of jet fuel as it bounced back after suffering earlier contract losses.
The shares rose 1.6% to $33.28. They peaked at $38.88 in early January.
