2020 has been a year of extreme volatility for the oil industry, with wild swings in prices and production. As a result, oil companies have had to make some tough decisions regarding their profits and losses. In this article, we’ll take a look at how oil companies fared in the 2020 financial year and the factors that contributed to their success or failure.
Oil Price Volatility
The beginning of 2020 saw oil prices rise to their highest level in many years, with Brent crude reaching a peak of $68.14 per barrel in February. However, the global pandemic caused demand for oil to plummet, along with its price. By April, Brent crude had dropped to a low of $20.37 per barrel, its lowest level in 18 years. This extreme volatility in prices had a major impact on oil companies’ profits.
Reductions in Production and Investment
In response to the dramatic drop in oil prices, many oil companies reduced their production and investment in 2020. The world’s largest oil company, Saudi Aramco, cut its 2020 capital expenditure by $20 billion. Major US oil companies such as Chevron, ExxonMobil and ConocoPhillips also slashed spending by billions of dollars. This had a major impact on their profits and losses.
Government Subsidies and Tax Breaks
In an effort to help the oil industry, many governments around the world provided subsidies and tax breaks to oil companies in 2020. For example, the US government provided billions of dollars in tax breaks and loan guarantees to US oil companies. Similarly, the UK government provided around £1 billion in subsidies to its domestic oil industry. These subsidies and tax breaks had a positive impact on oil companies’ profits.
Oil Companies Profits
Despite the extreme volatility in oil prices and the cuts in production and investment, many oil companies were still able to make a profit in 2020. For example, Chevron reported a $7.3 billion profit in the first quarter of 2020, while Saudi Aramco reported a profit of $49.7 billion in the first half of the year. Similarly, Royal Dutch Shell reported a profit of $5.2 billion in the first quarter, while BP reported a profit of $1.5 billion in the second quarter.
Oil Companies Losses
On the other hand, some oil companies suffered heavy losses in 2020. For example, ConocoPhillips reported a loss of $1.3 billion in the first quarter, while ExxonMobil reported a loss of $2.9 billion in the second quarter. Similarly, Occidental Petroleum reported a loss of $2.1 billion in the first quarter, while Valero Energy reported a loss of $2.2 billion in the second quarter.
Outlook for 2021
Despite the losses reported by many oil companies in 2020, there is some hope for 2021. The global economy is beginning to recover from the pandemic, and this should lead to an increase in demand for oil. In addition, the US and other countries are continuing to provide subsidies and tax breaks to oil companies to help them weather the storm. As a result, many oil companies are likely to return to profitability in 2021.
Conclusion
2020 was a tumultuous year for the oil industry, with wild swings in prices and production. As a result, many oil companies reported both profits and losses in the 2020 financial year. However, with the global economy beginning to recover and governments providing subsidies and tax breaks, the outlook for 2021 is more optimistic.