Oil shares down, profits up as markets look forward to post-war Iraq

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PARIS (AFP) Apr 04, 2003 Higher crude prices have made the 2003 first quarter a lucrative one for oil companies but their shares continue to fall on markets still jumpy about the situation in Iraq, analysts said on Friday.

The average price of a barrel of benchmark Brent crude rose to 30.59 dollars (28.53 euros) in the first three months of the year, boosted from 26.38 in the previous quarter on the back of concern about weak oil stocks, a national strike in Venezuela and, of course, the Iraq war.

Despite the rich first-quarter pickings this promises for majors such as Royal Dutch/Shell, BP, Eni, TotalFinaElf, ExxonMobil and ChevronTexaco, all have seen their share prices tumble or, at best, stagnate.

"The market is expecting the price of oil to fall again and does not believe it can remain sustainable above 30 dollars a barrel," said one market-watcher who preferred not to be named. "It's looking a bit further ahead."

TotalFinaElf, the French oil giant, has seen its stock value fall almost 15 percent in the first three months of the year, while Italian rival Eni has lost 19 percent and Royal Dutch/Shell 11 percent.

Nevertheless, the increase in prices is expected to have a big impact on company profits, with production costs remaining unchanged at around seven dollars a barrel for the most efficient producers.

"Transport and insurance costs may have increased a little, but that's marginal compared with the extra profit derived from the price increase," the same expert said.

Some companies could expect first-quarter profit to be "double what it was in the first quarter of 2002", he said.

"The first-quarter results will be excellent," agreed Antoine Leurent, an analyst with KBC Securities in Paris. "That's certain now."

Leurent said the improvement in profit would outweigh the negative effect of the weaker dollar on European oil firms' revenues.

Increased profitability from refining operations would also boost their bottom lines.

Leurent added that speculators believed the war would be short but would not be of much benefit to the oil companies, and were selling oil shares in favour of oil futures.

The extreme volatility of oil prices due to the tense international situation was also making it difficult to make predictions for the rest of the year.

The current "anomaly" of rising profit and falling share prices would come to an end if the Iraq conflict shows signs of approaching an outcome, Leurent said, predicting a correction "at both ends" simultaneously.

"Once we're on the way to a resolution we'll have more visibility," he said.