Oil Companies, Major 1Q20 Preview: A tough quarter - but not compared with what comes next

Integrated oil shares fell in 1Q amid wider market volatility and the collapse in oil prices, and earnings continue to decline. We forecast 1Q20 net income to be down -58% year over year, due to lower oil & gas prices and weak Downstream.

21 Apr 2020

Global integrateds y/y momentum (US$)

Source: UBS estimates, company data

The figure charts global integrateds' year over year momentum in income in US dollars from 1Q17 through 1Q20.

Earnings decline continues

We forecast 1Q20 net income to be down -58% year over year (-56% EPS year over year: Europe -47%; US -63%) and -48% sequentially, amid lower oil & gas prices.

Continued weak macro, but the severe data points of COVID-19 still to emerge

Global gas markets continue to be under pressure. US natural gas remains at multi-year lows (on record production, high inventories), dropping a further 22% quarter over quarter. Downstream markets are also squeezed by the demand slowdown and face a significantly problematic 2Q in all manufacturing and customer facing businesses.

And here comes 2Q...

Much of the 1Q reporting season will be to do with 2Q. New negative data points aren’t helpful for the sector but largely just emphasise what we already know. Production guidance should come down (capex, OPEC+, operational) but the key is getting through the worst. An area of keen interest will be dividends and how strongly.

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