As big oil companies embark on recovery from the pandemic lows of last year, they still posted significant returns in revenues despite a plunge in demand for their products.
Data acquired by Finbold indicates that the five largest companies in the sector recorded a revenue of $1.14 trillion in 2020, representing a loss of about 30.9% or $500 billion from the 2019 figure of $1.65 trillion.
China’s ability to resume economic activities early from the pandemic is also reflected in the country’s oil and gas companies performance. PetroChina’s last year revenue stood at $280.7 billion, a drop of 19.28% from 2019’s figure of $347.8 billion. Elsewhere, Sinopec, also from China, ranked second with a 2020 revenue at $271.1 billion, a drop of 37.32% from 2019’s figure of $432.5 billion.
How pandemic impacted oil and gas companies
The oil and gas giants posted one of their worst revenues as the coronavirus pandemic slowed demand. With the lockdowns, most people were confined in their homes as air travel fell to historic lows. Interestingly, some companies like Exxon posted their worst annual losses in modern history. Furthermore, as energy demand collapsed, oil prices also hit a record low, refining margins plunging amid an oversupply of the commodity.
At the same time, industrial capacity was heavily reduced due to social distancing requirements and, in the process disrupting shipments and consequently demand. The fall in demand alongside a price war between some of the biggest producers like Russia and Saudi Arabia culminated in a sharp fall in oil prices.
Besides the pandemic, the companies also faced increasing competition amid campaigns to transition towards renewable energy sources. Although the pandemic also hit the renewable energy sector, favorable conditions like government support have seen the industry supply more energy.
However, despite increasing efforts to accommodate renewables, there is still no uniform global framework for the transition that might tilt the oil and gas industry scale. The oil sector will potentially still enjoy dominance because the industry commands incredible influence in the global economy. Some companies are also adapting by investing in green energy initiatives to cater to their environmentally conscious investors.
Oil and gas industry on recovery
Notably, after plummeting in early 2020, the oil and gas industry showed recovery from the third quarter as economies reopened following the rollout of the vaccines. The recovery was also powered by rebounding the oil prices among OPEC and its partners. Although oversupply of oil and gas was initially cited as a major reason behind the price collapse, producers are managing their production while slowing down discovering new wells.
The recovery is reflected in the stocks of major oil companies. Our previous research showed the three-month relative stock performance was dominated by the energy sector with gains of 11.75% in profits after trading in the red zone in 2020.
In the next few years, consumption is forecast to remain below its pre-pandemic trend. However, the pandemic is likely to affect oil consumption in the longer term due to a shift in consumer behavior. For example, air travel globally might not fully recover as people opt for remote meetings. Elsewhere, a shift towards working from home might further lower the gasoline demand.
Credit: Finbold
