Oil Profits Increase As A Consequence Of The Energy Crisis

Antonio Guterres, the Secretary-General of the United Nations, accused the oil and gas companies of making profits as a result of the energy crisis caused by the war in Ukraine.

With gas and oil prices soaring, BP, ExxonMobil, Chevron, and Shell posted massive profits in the second quarter of 2022. Profits came with the sharp rise in oil prices to more than $100 a barrel and as a consequence of Western sanctions on Russia that have caused prices of all kinds of energy to rise, driving inflation to its highest levels in several decades and raising central bank interest rates.

Profits in numbers

In the United States, ExxonMobil, and Chevron achieved profits of 17.9 and 11.6 billion dollars, respectively. Shell achieved a huge net profit of $18 billion, while total energy recorded a net profit of $5.7 billion, as well as the Italian ENI, which earned $3.8 billion. BP posted a net profit of $8.45 billion between April and June, more than three times the amount it made in the same period in 2021 and its highest profit rate to date.

Andrew Critchlow, head of Europe and Middle East news at SOP in Britain, told the BBC: “If we look at oil prices in the last year, we understand the performance of BP and other international oil companies”. And he added: “At around $100 a barrel, it has fallen a little bit because of the economic situation, but the international oil companies are following international tariffs and the rise in prices is giving them a boost”.

In general, ExxonMobil’s revenues increased by 71%, while Chevron’s increased by 8%. The two companies also benefited from the rise in the prices of refined products, which significantly boosted their profits, as well as from the increase in crude oil production and from the control of their expenses.

Where do the profits go?

A study conducted by the International Monetary Fund showed a 7% increase in the price of crude oil, which in turn leads to an increase in transportation and production costs in manufacturing, and thus to a decrease in exports.

In the Gulf, the IMF predicted brighter economic prospects for the Gulf Cooperation Council countries with higher oil prices, and a gradual retreat from the policy of production cuts, with the region’s GDP growth expected by 4.2% in 2022. Indeed, Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates experienced real GDP growth of 4.8%, 4.3%, 4.0%, and 3.0%, respectively, this year.

In particular, according to preliminary government estimates, Saudi Arabia’s gross domestic product rose 11.8% in the second quarter compared to the same period in 2021, as the world’s largest oil exporter benefits from higher energy prices. The General Authority for Statistics said that the growth was largely driven by a 23.1% increase in oil activities, while non-oil activities expanded by 5.4%.

CEO of Kristol Energy Carol Nakhleh told Al Arabiya that all producers, companies, and countries are benefiting today from the rise in oil and gas prices, pointing out that we must not forget that “private companies incurred huge losses during the outbreak of Covid-19. Now they are making big profits, but how long will those profits last?”.

And she continues: “When oil prices rise, there is waste, and state expenditures increase, and when prices fall, they reduce spending. Now, we see that the Gulf states in particular are more cautious than before, and when oil and gas prices rise, they do not spend as was the case. In the past, this was a prudent economic policy to keep these profits for the future or to invest them in a way that will bring them profits in the long run”.

What About Qatari Gas?

In the search for alternatives to Russian gas, Germany announced in May that it had signed a preliminary energy agreement with Qatar that opens the door to the largest European economy on Qatari gas. Days later, the Qatar Investment Authority pledged to invest 10 billion pounds in Britain, in reference to strengthening relations between Doha and London.

According to the Financial Times, Qatar Energy, the state-owned gas producer, has announced joint venture agreements with five of the world’s largest international oil companies to develop a massive $29 billion project known as the Northeast Field. The project aims to increase Qatar’s annual export capacity from 77 million tons to 110 million tons by 2026, helping it overtake Australia as the second-largest gas producer after the United States.

Thus, deals with British Shell, ExxonMobil, US ConocoPhillips, France’s Total Energy, and Italy’s ENI are the product of years of preparation and development and not the result of the search for energy supplies in the wake of the Russian war on Ukraine.

Finally, Dr. Nakhleh is reassured that even though “there are still concerns that the market will lose additional barrels from Russia, the worst-case scenario has not yet occurred… We are not saying that the worst-case scenario will not happen, but the impact on demand must be taken into account. There are fears of economic stagnation and its negative impact on demand. As for the consumer, he will not be satisfied with continuing to pay high prices without research about alternatives”.