Oil and gas earnings reports might turn out to be ‘brutal’

Oil massively drops to start the week

As the markets go crazy over earnings, it looks like oil and gas might be heading to report massive losses.

The second half of the year is upon us and it looks like the big oil companies are about to expect another plummet in terms of their earnings. Oil futures over the middle of July had mixed results due to the rising coronavirus cases in the U.S.

While both WTI and Brent Crude Oil are sitting over US$40 [AU$57] per barrel, energy market participants are getting cautious as analysts are expecting “horrendous” second-quarter results over the next two weeks as per CNBC.

PVM analysts said in a note, based on a report from Reuters:

“Both crude benchmarks are roughly back where they were before this week’s upside breakout. Looking ahead, the oil market will likely settle back into a wait-and-see mode amid the increasingly uncertain environment.”

Major oil companies are expecting the worst

While most of the oil and gas companies are set to unveil their earnings report before the month ends, S&P Global has already projected the earnings since the historic futures drop and the production cuts from Saudi Arabia.

Shell second-quarter earnings results will be unveiled on July 30, and it is expected to be a big write-down, which means that a company’s value may come out cheaper in the long term.

Shell CEO Ben van Beurden said in a July 6 recorded interview with IHS Markit, per S&P Global:

“It could be as much as $22 billion post-tax. It will be a major number.”

Aside from Shell, U.K. energy giant BP also lowered its oil price expectations through 2050 with a second-quarter write-down of $17.5 billion.

The International Energy Agency (IEA) already expected the largest decline of global energy investment in history.

Other oil companies have reported negative earnings

While investors wait for the official earnings from the big oil giants, some have already reported bad earnings.

As per GlobeNewswire, Canadian oil and gas company Cenovus Energy Inc. incurred a second-quarter operating loss of $414 million and a net loss of $235 million compared with operating earnings of $267 million and net earnings of almost $1.8 billion in the same period in 2019.

Another Canadian company Suncor Energy also reported an operating loss of $1.489 billion in the second quarter of 2020, higher compared to operating earnings of $1.253 billion in the prior-year quarter.

It looks like energy investors may need to observe the oil markets moving forward especially on the big companies that have yet to reveal their second-quarter earnings reports.

Featured image courtesy of jpenrose/Pixabay

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