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The fall in oil prices cause cost

The fall in oil prices cause cost
The fall in oil prices will cost BP about $6bn in pre-tax profit in the fourth quarter of the year compared with the third quarter.

The fall in oil prices will cost BP about $6bn in pre-tax profit in the fourth quarter of the year compared with the third quarter.

The fall in oil prices will cost BP about $6bn in pre-tax profit in the fourth quarter of the year compared with the third quarter, according to figures posted on the company"s website. BP"s shares fell sharply on Wednesday after the company"s investor relations department talked to analysts about their forecasts for its results for the fourth quarter, which are due to be published on February 3 It said analysts seeking to update their forecasts had been pointed towards its regular update of trading conditions, posted every week on its website, but it had not disclosed any information that was not already in the public domain.
BP shares closed down 30¾p at 523¾p, a drop of 5.6 per cent.

The trading conditions update published by BP this week was the first showing data for the whole of the fourth quarter.

The greatest effect on profits will come from falling prices; oil averaged $55.48 per barrel for Brent crude in the fourth quarter, down from $115.09 per barrel in the third quarter.

BP"s rule of thumb is that each dollar movement in the oil price adds or subtracts $400m from a full-year"s pre-tax profits, implying that a $60 per barrel drop in the price of oil will cost about $6bn (£3.95bn) in a quarter.

Gas prices in the US and the UK, and refining profit margins, particularly in the US Gulf Coast and Midwest, have also fallen since the third quarter, putting further pressure on profits.

BP reported a replacement cost profit of $15.5bn before interest and tax in the third quarter, suggesting there could be a 40 per cent drop in profits in the fourth quarter from the oil price effect alone.

Over the past six months, as the world has plunged into recession and financial crisis, shares in big oil companies such as BP, Royal Dutch Shell and ExxonMobil of the US have outperformed market averages.

However, analysts have begun to focus on the effect that a sustained period in which oil costs less than $50 per barrel will have on company profits and cash flows.

BP suggested in October last year that with an oil price below $60 per barrel, it would have trouble sustaining its dividend payment and capital spending programme from free cash flow, and would have to borrow to support them if costs remained at present levels.

Tony Hayward, chief executive, said he expected costs to fall, both because of a general cooling in the industry that will ease shortages of equipment and skilled staff, and because he is continuing his drive to cut costs in the company, going beyond the 5,000 job cuts already announced.

www.TurkishMaritime.com.tr

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