Fuel refiner and retailer Viva Energy has recorded a $35 million hit to its earnings thanks to sharply rising global oil prices, and it expects more pain ahead.
Viva has recorded an improvement in its refining margins for the 2019 March quarter but volatile oil prices – which have jumped nearly 50 per cent since December – have stripped out its petrol station earnings.
“Challenging trading conditions in 2019, predominantly due to sharp increases in the oil price, have impacted fuel margins,” the company said in a statement to the ASX on Monday.
“This has negatively impacted Viva Energy retail segment’s underlying earnings in the range of $30 million to $35 million through to the end of April 2019.”
Viva’s value fell about $230 million in early Monday morning trading following the announcement. It closed down 3.4 per cent at $2.28.
Viva said it expected continued weaker retail margins to the end of the financial year, in June 2019, as oil price volatility continues.
“Variability in retail margins is a typical feature of the retail fuel market, influenced by the competitive pricing cycle in major markets as oil prices and foreign exchange rates rise and fall,” the company said.
However, the company remained optimistic around its performance for the second half of the year.
“Despite the current challenging trading conditions, Viva Energy is in the initial stages of implementing strategies to improve retail price competitiveness and remains focused on lifting sales volumes through the Alliance network [with Coles Express],” Viva said.
Earlier this year, Coles Express and Viva extended their petrol partnership out to 2029.
Viva recently took back control of petrol pricing from Coles Express after the consumer watchdog named and shamed Coles Express as the highest priced fuel in the country, which led to falling fuel sales volumes.
The latest earnings hit comes as the Australian Competition and Consumer Commission reviews Viva’s grip on the fuel retail sector. The ACCC is specifically looking at whether Viva’s proposed acquisition of the half of fuel retailer Liberty Oil it doesn’t own could drive up petrol prices by dominating the market.
Viva originally bought a non-controlling stake in Liberty in 2014 for an undisclosed amount. The deal brought the total number of Viva’s retail sites to 1255 petrol stations and made it the largest single fuel retailer in the country. Caltex and BP are its major rivals.
Viva Energy chief executive Scott Wyatt said the group would focus on driving down prices after it gained control of fuel pricing from Coles Express.
On Friday, the oil price suffered a rare downturn for the year, dropping more than 3 per cent to $US72 a barrel after it reached a 2019 high of $US74.
The price has risen about 47 per cent since December due to oil cartel OPEC and Russia cutting global production levels and the US enforcing oil sanctions on Iran.
ANZ expects the price pains to continue for Viva because of a rising oil price.
“We expect Brent crude to rise a further 7 per cent to reach $US79 a barrel by mid-2019,” ANZ analyst Irene Cheung said.
Extracted from Brisbane Times