SARS outbreak clouds oil company outlook
Reuters, 05.02.03, 3:44 PM ET By Joseph A. Giannone
NEW YORK, May 2 (Reuters) - The global travel slump and a potential slowdown in Asia's economies prompted by the deadly SARS virus could cut into energy companies' earnings in the second quarter and beyond, analysts and industry executives said. Severe Acute Respiratory Syndrome has claimed nearly 400 lives since spreading from China in March. Efforts to avoid and contain the disease have crimped travel and tourism and shut down factories and office buildings in China and Hong Kong.
Industry analysts say demand for oil and refined fuels will suffer, sapping profit growth at Exxon Mobil Corp. (nyse: XOM - news - people), ChevronTexaco Corp. (nyse: XOM - news - people) and ConocoPhillips (nyse: XOM - news - people) -- all global oil companies with big refining and marketing businesses in Asia. "SARS has reduced airplane travel, reduced jet fuel demand and affected the economy," said analyst Lowell Feld of the U.S. Energy Information Administration, referring to China.
Energy companies, which posted record first-quarter profits amid soaring oil and gas prices, already face a period of falling prices. The war in Iraq ended with little damage to that country's oil facilities and fears of further disruptions in oil-producing countries Venezuela and Nigeria have eased.
Yet now companies face the prospect of reduced sales of jet fuel, gasoline, natural gas, chemicals and power in Asia, according to Lysle Brinker, an oil analyst for John S. Herold.
No one knows for sure how far SARS will spread, and some analysts complain fear is causing more economic damage than the virus. Still, industry executives say the disease and the world's response will put a dent in second-quarter results.
OPEC President Abdullah Al-Attiyah, Qatar's oil minister, estimated last week that SARS will reduce oil demand by about 300,000 barrels per day (bpd).
If the two-month old downturn persisted, SARS could erase much of Asia's projected economic growth. J.P. Morgan Chase has warned the virus may not be brought under control until June.
China's economy, once expected to expand by 8 percent, now may shrink by 2 percent in the second quarter. It had been slated to consume an additional 100,000 bpd this year, according to EIA estimates.
"The demand side of the picture is in big trouble because of the high energy prices we've experienced the past few months and SARS' impact on demand in Asia," said Fimat USA analystJohn Kilduff.
CANCELED FLIGHTS
The airline industry, a major consumer of jet fuel and other oil products, has been hard hit. Industry group IATA in March said trans-Pacific flights were down 12 percent and Europe-to-Asia flights fell by 15 percent.
"Some destinations have seen traffic down 30 percent," IATA spokesman William Gaillard said. April figures won't be available until mid-May.
A spokesman for Exxon Mobil, the world's largest publicly traded oil company, told investors on Thursday that demand for jet fuel so far in the second quarter has decreased by 12 percent to 15 percent from the first quarter.
"The industry's going to see an impact because of the announcements by several airlines cutting back on flights," the spokesman said.
ChevronTexaco declined to forecast what impact the disease would have on its business.
IATA said fear of SARS slowed travel well beyond the affected areas. Tourists and businesses people are avoiding Thailand, Indonesia, Malaysia and Japan, where the number of SARS cases "is infinitesimal," Gaillard said.
Exxon Mobil has refineries in Thailand, Malaysia and Singapore and 2,800 service stations throughout the Asia-Pacific region. ChevronTexaco has three refineries, 2,800 Caltex service stations and other assets in China, South Korea, Hong Kong and Taiwan.
ConocoPhillips owns or operates refineries in Malaysia and Thailand as well as 130 service stations in Thailand. It has a new retail venture in Malaysia.