The winners and losers from $80 a barrel crude oil

The government coffers of oil producing countries are swelling, but drivers in consumer nations are paying more for their fuel. As Brent hits $80 a barrel, who are the winners and losers of rising crude prices?

Among the winners are the major oil producing countries and energy companies.

In 2017 Opec and Russia began curbing supply to bolster crude prices and export revenues. Producer economies on the whole have benefited and the oil price is gaining further support as Iran has been hit by a new round of US sanctions and Venezuela’s energy sector is collapsing against a backdrop of an economic crisis.

The improvement in oil prices has already narrowed Opec-kingpin Saudi Arabia’s budget deficit, from 12.8 per cent of gross domestic product in 2016. This year it is expected to fall to 7 per cent.

Shares of oil and gas majors have rallied on better cash flows and earnings. The surge in revenues has raised the prospect of greater shareholder returns with BP signalling its first dividend increase since 2014. The MSCI European Energy index and the S&P 500 Energy index, which track companies from Royal Dutch Shell to Chevron, have both risen about 15 per cent since the end of March.

Heading the list of losers are airlines, consumers and the shipping industry as a rising oil price squeezes them. Jet fuel represents a third of airline operators’ expenses and executives predict costs will be passed on to consumers via higher fares. American Airlines, which has stopped fuel hedging, has seen its shares fall 15 per cent in the current quarter, having lowered its 2018 profit forecast.

While India’s petroleum minister warned of the “negative impact” of higher oil on big consumer countries, individuals too will be paying higher petrol prices at the pump with the US summer driving season set to be the most expensive in years. According to AAA the average price at the pump is $2.91 a gallon — up almost 25 per cent from a year ago.

Cut backs in oil supplies from big exporting countries has curbed demand for vessels just as there are an excess of tankers ready to ship oil. Shipbrokers say greater bunker fuel costs are hitting owners of vessels particularly hard as they are unable to boost rates for hiring tankers in tandem.

 

FT