Virus crisis worsens for Caltex as ships store oil glut out at sea
Australian fuel giant Caltex says the pain of the coronavirus-driven collapse in demand has become even more acute as traders turn to ships to store crude oil nobody is buying, sending freight costs higher.
Caltex and the country’s three other oil refinery operators have been approaching breaking point since lockdowns to arrest the spreading pandemic wiped out demand for petrol and jet fuel and slashed their already-sinking profit margins. The crisis has forced the companies to dramatically wind back output as they run out of on-site storage capacity, while Caltex has said it will bring forward a planned shutdown of its Brisbane refinery and keep it closed until conditions improve.
The glut has become so severe that refiners and traders have been using ships to store unwanted oil out at sea, with Caltex interim chief executive Matt Halliday warning on Thursday that freight rates for crude-oil tankers were rising as a result.
“Unfortunately, the demand and broader impacts of COVID-19 on our business have become more
acute as we have pushed into the second quarter,” he said. “In the current environment we are seeing a weakened crude oil market, with increase in storage on water lifting crude and product freight rates.”
His comments come as the Organisation of Petroleum Exporting Countries (OPEC) said it expected global oil demand to suffer its steepest-ever decline this year, even as some governments begin relaxing coronavirus lockdown restrictions. In its monthly report, OPEC this week said it predicted demand would shrink by more than 9 million barrels a day – or 9.1 percent – in 2020.
Caltex said retail fuel sales so far this year were 16 percent lower than the same time last year, while jet fuel was expected to fall as much 90 percent while travel restrictions remained. The company said it was seeing “demand resilience” from customers in mining, agriculture and road transport sectors. “Caltex remains committed to taking necessary action to protect our assets and market-leading position to optimise cash flows and shareholder value,” Mr Halliday said
Also on Thursday, shareholders at the company’s 2020 investor meeting voted overwhelmingly in support of Caltex’s move to rebadge its petrol stations under the Ampol brand over the next two years. “A big part of our future will be our transition back to the iconic and company-owned Ampol brand,” chairman Steven Gregg said.
“Ampol continues to be regarded as a high-quality and trusted brand by Australian consumers and resonates across our key customer segments.”
Caltex first flagged its plan to rebrand as Ampol just before Christmas last year after US oil giant Chevron terminated its licensing agreement, removing the Australian company’s right to use the Caltex name.
Ampol was a historic Australian fuel business, founded in 1936 and originally known as the Australian Motorists Petrol Company. It was acquired by concrete seller Pioneer in 1988 before merging in 1995 with Caltex Australia, which retains the rights to the name.
Caltex initially said the cost of rebranding its 2000-odd petrol stations would be $165 million but Mr Halliday told The Age and Sydney Morning Herald last week the company had identified a number of efficiencies which would see the total cost come in lower.
Extracted from The Sydney Morning Herald