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Oil giants see plunge in profits

30 July 2009

In 2008 global crude prices hit a record $147 a barrel. However, as a consequence of the worldwide recession being experienced, US light crude is currently approximately $64. Due to this sharp decline in oil prices Royal Dutch Shell, Europe’s largest energy company and Exxon Mobil have both reported a big fall in quarterly profits. Second quarter profits at Anglo-Dutch group Shell slumped 70% from a year earlier to $2.3bn. Exxon's profits for the same period declined 66% to $3.95bn.

Oil giants see plunge in profits
Oil giants see plunge in profits

BP has also reported a 53% reduction in profits, despite an extensive cost-cutting programme.

Shell’s profit drop was worse than their British peer, as they are further compounded by external factors, which have resulted in a 6% drop in crude production. For example, violent production disruptions by militants sabotaging pipelines in Nigeria, a key supply source, has cut deeply into total output. Shell is also blaming the insecurity in Nigeria for a drop in LNG sales.

Shell is adapting to these conditions by cutting costs and took $700 million out of its operations in the first half, not including foreign exchange gains of $2 billion in cost reduction. The new CEO has launched a savings programme that has already reduced its senior management numbers by 20% and plans to cut capital expenditure by 10% next year.

The outlook for the oil markets appears gloomy. Conditions are predicted to remain challenging for some time because of the volatility of commodity prices and reduced demand for products by vehicle drivers and industries. Energy demand is weak, there is excess capacity in the market, and industry costs remain high. No early respite is expected.

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