The drastic reduction in crude oil quotations on world stock exchanges has not gone hand in hand with a fall in fuel prices at filling stations in Poland. According to data from the Autocentrum portal, the average price of petrol 95 reached its peak in June this year, amounting to PLN 7.84 per litre (6,78 USD/gallon), and has fallen by 17.6% to date (currently the average is PLN 6.46 per litre around 5,58 USD/gallon). At the same time, the average pump price in the US peaked at US$ 4.84 per gallon (approx. PLN 4.12/l) and has now fallen by 32% to US$ 3.26 per gallon (approx. PLN 2.84/l). In the US, station prices seem to follow oil market trends, which could not be said for Poland, where prices have remained at similar levels since August.
Source: Conotoxia MT5, XTIUSD
What can Exxon do that Orlen can't?
Despite falling oil prices, the margin (percentage of net profit on revenue) on every litre sold of one of the largest US oil companies, Exxon Mobile, rose from 15.4% to 17.5% in Q3 this year. At the same time, Orlen's margin rose from 7.45% to 10.7%. As it turns out, it may not have been caused by the company's improved service delivery.
The increase in profitability with falling station prices (at least those in the US) may have been due to increased refinery capacity utilisation and increased revenues in Q3 of this year. As we can learn from a comment by US CEO Darren Woods: "Rigorous cost control and growth of higher-margin petroleum and chemical products also contributed to earnings and cash flow growth in the quarter." The US company's production costs fell by 6% quarter-on-quarter. Over the same period, these costs for Orlen increased by as much as 34%.
Source: Conotoxia MT5, ExxonMobil, Daily
In the case of Orlen, the quarterly result could have been significantly influenced by a hedging position on foreign exchange contracts (hedging), which generated a PLN 3.5 billion profit for the company in the event of a weakening of the Polish currency. The increase in Orlen's revenue may also have been largely due to the acquisition of Lotos Group and the inclusion of its result in the company's results, which generated an additional PLN 2.3 billion in revenue.
Perhaps a different route for CEO Obajtek (Orlen)?
It seems that instead of imposing ever-higher margins and charges on Polish motorists, it is possible, following the example of Exxon Mobile, to focus on cutting costs and increasing production instead of monopolising the Polish fuel market and graciously bailing out Poles with VITAY cards.
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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