Why have oil major profits fallen from 2022 highs?

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Oil Major Profits Decline from 2022 Peaks Due to Lower Commodity Prices

Oil and gas majors have experienced a significant decrease in profits during 2023 compared to the exceptional highs of 2022. This reduction is primarily attributed to the substantial drop in oil, gas, and refined product prices. While these companies are no longer posting the record-breaking earnings seen last year, they continue to maintain strong profitability.
Impact of Fluctuating Commodity Prices

The financial performance of major energy companies like BP, ExxonMobil, Chevron, Shell, and TotalEnergies in the second quarter of 2023 reflected a considerable decline. BP reported a net profit of US$1.8 billion, a mere fifth of its earnings from the same period in the previous year. ExxonMobil's profits fell by 56% to US$7.9 billion, and Shell saw a 64% drop in net earnings to US$3.1 billion. This trend was influenced by fluctuating market prices for the commodities they produce and trade.
Comparison with 2022's Exceptional Earnings

In 2022, the combined net profits for the five leading oil majors reached US$151 billion. This surge in earnings was driven by a confluence of factors, including supply concerns arising from Russia's invasion of Ukraine and increased global demand as economies recovered from pandemic-related lockdowns. Such a market environment led to unprecedented price levels for oil and gas.
Current Market Price Environment

The current market conditions show significantly lower commodity prices compared to the peaks of 2022. For instance, the Dutch TTF gas contract, a key European benchmark, has traded between 25 and 55 euros per megawatt hour in recent months, a stark contrast to the nearly 350 euros recorded in March 2022. Similarly, Brent crude averaged US$78.10 per barrel in the second quarter of 2023, down from US$114 in the corresponding period of the prior year.
Continued Profitability and Shareholder Returns

Despite the decline from 2022's extraordinary figures, the energy majors remain highly profitable in 2023. This sustained profitability is evident in their continued rewards to shareholders, including increased dividends and share buyback programs. Shell, for example, announced a 24% increase in its interim dividends. Furthermore, these companies have demonstrated improved debt ratios, indicating a solid financial standing.

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Why have oil major profits fallen from 2022 highs?

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