Crude oil price surges again, signalling bad news for Covid-19-hit Irish firms    

The Brent benchmark price is now back within sight of $60 after crude has kept climbing steadily since late last year as coronavirus vaccines and producers’ supply curbs boost expectations of a tighter market. Photo: Jason Alden/Bloomberg

Brent crude oil prices surged again, rising to almost $57 a barrel, as oil in New York trade reached its highest level in a year as the virus-recovery rally continued. The surge spells bad news for Irish firms already struggling with the Covid-19 crisis.   

The Brent benchmark price is now back within sight of $60 after crude has kept climbing steadily since late last year as coronavirus vaccines and producers’ supply curbs boost expectations of a tighter market. Meanwhile, Opec and other suppliers see stockpiles falling below their five-year average in the second quarter. 

For Ireland and most of the rest of Europe, which is facing a relatively slow roll-out of vaccines, the surge in global oil prices could not come at a worse time because it signals that the retail costs of fuel and power and almost every business cost will rise in the coming weeks. 

Nonetheless, crude oil still faces bumpy short-term demand amid concern that new virus variants will lead to more lockdowns, while vaccine rollouts are slower than expected in some countries. The oil market is “supported by the combination of tightening fundamentals, as seen through the rising backwardation and the renewed risk appetite in the US stock market,” said Ole Hansen, head of commodities research at Saxo Bank. Crude oil had slumped in 2020 as large parts of the world economy were locked down for months.   

BP offered more evidence that Big Oil has barely begun to heal the wounds from last year’s historic slump. The Western world’s largest energy producers were supposed to be sailing into the fourth-quarter earnings season with a tailwind from stronger commodity prices, but BP’s miss, Exxon Mobil’s $19bn (€15.7bn) writedown and Chevron's surprise loss show the enduring impact of the Covid-19 pandemic. 

BP eked out a modest profit, but it was just a fraction of typical pre-pandemic levels. Cash flow, which failed to cover dividends and capital expenditure despite deep cuts to both, raised more fundamental questions about the company’s ability to sustain investor returns. Shares fell as much as 4.5%.

“This was a challenging end to 2020,” said Stuart Joyner, an analyst at Redburn. “Operating cash flow remains very weak and missed expectations. We will likely see net debt worsen in the first quarter, which will temper expectations of better shareholder distributions.” BP’s fourth-quarter adjusted net income was $115m, down from $2.57bn a year earlier and only a slight improvement from the preceding three months. The company fell short of the average analyst estimate of $440m. 

Operating cash flow excluding Gulf of Mexico spill payments, a key figure for investors, was much weaker. It fell to $2.4bn in the period, down from $5.4bn in the third quarter. “Tough quarter, clearly, at the end of a really tough year,” BP chief executive Bernard Looney said.

Bloomberg and Irish Examiner