Skyrocketing oil price puts Viva Energy under pump
THE refinery heavyweight that supplies Coles Express petrol stations has issued another profit warning as a jump in oil prices squeezes its margins.
Viva Energy says trading conditions have been challenging in the retail fuel market, largely due to sharp increases in the price of oil.
The oil price has spiked by 32 per cent from $US47 a barrel to $US63 ($A89.32) since the start of the year.
Geopolitical risks and production cuts by members of the Organisation of the Petroleum Exporting Countries cartel are key factors that have pushed up oil prices.
Viva, led by chief executive Scott Wyatt, owns the Geelong refinery – one of only four in Australia – and has a network of more than 20 fuel import terminals. It accounts for about a quarter of the refined fuel market in Australia.
In a statement yesterday, Viva said variability in margins was “a typical feature of the retail fuel market”.
Margins were influenced by “the competitive pricing cycle in major markets”, along with rises and falls in oil prices and foreign exchange rates, it said.
Viva said that for the fourmonth period ending today, it
expected to take a hit to retail earnings before interest, tax, depreciation and amortisation of $30 million to $35 million on an underlying basis.
That forecast is based on the replacement cost of fuel.
The final earnings tally for the first half would hinge on market conditions in May and June, the group said.
Viva’s net profit for the year to last December missed forecasts issued in its prospectus, published ahead of its float mid last year, by almost 10 per cent.
But Viva’s refining margin in Geelong improved to $US6.50 a barrel last month, up from $US3.90 in February.
Analysts at investment bank Macquarie said the improvement in refining margins could lead to upside for Viva’s first-half earnings from refinery operations and offset any weakness in retail fuel pricing. The expected hit to retail earnings “could easily be absorbed” if strength in the refining operations continued, they said.
In a research report for investors, Macquarie also noted the market was yet to see the implications of Viva’s move to rework its decade-long supply deal with Coles, which had given it control over setting fuel prices.
Viva shares closed down 2 per cent yesterday at $2.45.