Crude oil prices have been climbing quickly over the past six months, with big jumps higher and swift pullbacks that have played havoc with oil companies’ earnings.
And now, after clawing its way back above $80 a barrel, the price of oil is once again on the retreat.
Today marks the fourth straight day of declines in crude oil prices. Prices dropped to $78 a barrel on news that U.S. consumer confidence fell to lower-than-expected levels this month at 47.7. This is the index’s worst performance since July, when consumer confidence measured 47.4.
Under these circumstances, oil companies have resorted to severe cost-cutting measures.
These have yielded positive results for companies like British Petroleum (BP:NYSE) and Occidental Petroleum (OXY:NYSE).
BP just released its earnings report showing net profits of $5.3 billion, beating estimates. Occidental Petroleum’s earning show a net income of $927 million, also beating estimates.
Interestingly, these company’s profits and income respectively are down 34% and 59% year over year… yet their share prices are climbing on the news.
These jumps may be momentary, however.
Chris Baldwin from Reuters reports, “Traders anticipated the market would remain nervous about prospects for growth and a series of positive corporate earnings has been based on cost-cutting rather than increased consumer demand.”
And indeed, BP’s costs were significantly cut.
Richard Griffith of Evolution Securities told Forbes that the company benefited from “reduced operating downtime, volume growth and sharply reduced operating costs.”
BP’s costs were down 15% for the first nine months of 2009, and the company now expects to spend $4 billion less year over year for the full 2009, more than double what it had originally estimated.
Occidental Petroleum was even able to expand production, which helped it beat estimates soundly. The company’s per share earnings came in 8 cents higher than Bloomberg analysts’ estimates, totaling $0.26 per share for the third quarter.
These measures don’t do anything for downstream companies, like refiners, however… And the issues that are causing crude prices to fluctuate are still hammering companies like Valero Energy Corp. (VLO:NYSE).
“Valero scrambled to cut costs to deal with the squeeze caused by rising crude oil costs and relatively flat prices for refined petroleum products during the quarter, as it hopes for an uptick in 2010,” says Steve Gelsi from MarketWatch.
The company said it lost $489 million for the most recent quarter versus year-ago gross income, which equates to about $0.87 per share.
Valero’s CEO Bill Klesse said, “Refining margins in the third quarter continued to suffer from a combination of weak demand for refined products and high inventories.”
The American Petroleum Institute’s crude oil report due out this afternoon is expected to show that gasoline stocks declined by 300,000 barrels last week… a much lower drawdown than the Energy Information Administration’s report showed of the previous week.
Then, gasoline stocks showed a decline of 2.3 million barrels, which resulted in a retail price spike of 8.5 cents per gallon.
The EIA’s next report is due on Wednesday at 1 p.m.
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