RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Oil priceWittman- In regard to Oil company's. here is what Morgan Stanley is saying on profitability:
Oil Companies Third-Quarter Results Should Be Rosy Amid High Oil, Gas Prices, Morgan Stanley Says
Wed Oct 17 11:49:02 2018 EDT
11:49 AM EDT, 10/17/2018 (MT Newswires) -- Oil companies are getting ready to unleash their third-quarter financials, which should look fairly positive considering oil and gas prices are high, refining margins are "resilient" and turnarounds have declined, Morgan Stanley said in a note to clients on Wednesday.
If cash conversion in the quarter follows its typical path, it's likely oil companies will report higher quarter-on-quarter cash flow as well, the bank said.
Third-quarter macro economics were primarily beneficial to major companies as global benchmark Brent crude remained at a lofty $75 a barrel. European gas prices and spot LNG prices in Asia increased quarter-on-quarter, rising above the strong levels seen in the first quarter of the year, Morgan Stanley said. Refining margins in Europe remained "resilient" despite the decline of margins in September due to strength in the remaining two months.
"We forecast the majors to report earnings that are on aggregate (about) 5% higher quarter-over-quarter and 45% higher year-over-year," the bank said. "Once again, we expect aggregate earnings to reach their highest level since the third quarter of 2014. Whilst the macro environment remained favourable, the results are likely to be tempered by high maintenance activity in the upstream in the third quarter."
Refining businesses of large oil companies benefited from higher throughput as companies completed the majority of turnaround activities in the second quarter. Higher cash conversion likely will lead to a bigger increase in cash flows.
Assuming trends in which cash flow from operations in third quarters past are around 95%, Morgan Stanley expects the Big 5 oil companies could generate $32 billion from operations, up 10% on a quarterly basis. Capital expenditures also are expected to increase given the low run rate in the first half.
The bank said it sees potential for an 18% increase in quarter-on-quarter free cash flow, and would be buyers of Total (TOT) and BP (BP) going into third-quarter results.
"Total should benefit from the increased contribution from recent startups (Kaombo, Ichthys) and recent acquisitions,especially from Maersk Oil and Gas assets," Morgan Stanley said. "Coupled with a 15% increase in refining margins, this should lead to a 4% quarter-on-quarter increase in net income and an 8% increase in CFFO (cash flow from operations), we estimate."
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