Petron may post better Q1 figures

MANILA, Philippines — Petron Corp., the country’s remaining oil refiner, may enjoy better first quarter revenues and margins due to higher global crude prices, according to CreditSights Inc., a unit of Fitch Group.

In a report, CreditSights analyst for Asia Pacific Corporates Rohan Kapur and senior analyst Lakshmanan R. said they expect Petron’s sales volumes to continue to grow year-on-year following the company’s partial recovery in 2021.

Last year, Petron’s sales volumes rose by five percent to 82.24 million barrels, which it attributed to the easing of restrictions and re-start of economic activities that improved overall demand.

The Fitch unit, however, said the 2021 sales volume is still 23 percent lower than pre-COVID levels.

It said the oil firm bought crude oil in the fourth quarter of last year at an average Dubai crude price of $77.9 per barrel. As of the first quarter, Dubai crude is sold at an average of $94.6 per barrel, allowing the company to sell its products higher at the pumps.

“The company holds around two months of inventory, and prices charged at fuel pumps are indexed to Dubai crude oil prices and reflected on a weekly basis,” the authors said.

On the downside, Petron could suffer inventory losses if prices drop when it is currently forced to buy crude oil at $97 per barrel.

Its two-month inventory exposes its earnings to inventory losses, stemming from short-term swings in crude oil prices, CreditSights said.

It explained that Petron’s sales prices – or prices sold at the pumps – are linked to Dubai crude prices which are adjusted on a weekly basis.

“As a consequence, were Dubai crude oil prices to drop hereon, the company would be forced to sell fuel at lower prices, thereby pressurizing its margins due to inventory losses,” the authors said.

Moreover, a new COVID variant could add another negative driver for Petron as various COVID-induced restrictions in the past two years have dealt a blow to its sales, CreditSights said.

“Another COVID variant could potentially play spoilsport to the recovery in Petron’s sales volumes,” the authors said.

Last year, higher volumes and recovery in international oil prices allowed Petron to book P6.14 billion in net earnings last year, a reversal of the P11.4-billion net loss in 2020.

Its consolidated revenues jumped by 53 percent from P286 billion to P438.06 billion, driven by the increase in international prices and higher local demand.