Oil price bonanza may trigger dividend hike for big firms

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The incessant increase in the price of oil over recent months has been a moot point for many people, especially those in western countries who are now having to battle with the cost of paying for their domestic heating or the painful cost of buying fuel for their car.

What appeared inconceivable last year when oil prices were very low and had only just begun to recover from the negative equity position that crude oil was in in March 2020, is now a very harsh reality for many domestic and commercial consumers, just as it is for commodities traders who have to make their investment in crude oil work against the backdrop of a surprisingly strong US Dollar.

Currently, the price of oil is still extremely high, with Brent Crude commanding a price of $103 per barrel at July 25, and oil companies are quite simply raking in the profits.

The sanctions which were placed on companies in all sectors of industry based in Russia earlier this year have also had an impact on the price of crude oil, as Russia is an OPEC country and has a vast oil and raw materials industry which exports its products globally.

Once the ability for Russian oil companies to access their settlement payments for oil and gas in Euros or US Dollars via European and North American banks became impossible due to the freezing of those accounts, and Russian oil companies ended up insisting that European and American customers settle their oil and gas purchases in Rubles via Russian banks, the US Dollar became less connected to the commodities settlement business and the ruble shot up, but of course overall demand for oil remained very high.

As a result, the dollar value of oil is still high indeed.

Some of the top international oil majors have already announced expectations of extremely high revenues, especially in their refining divisions, for the second quarter of this year.

A number of analysts expect at least some of them to step up share buybacks and some even to announce an increase in dividends due to record cash flows and record or near-record earnings.

Some Western oil companies are doing very well indeed, as this is a global phenomenon and a global supply and demand issue.

French supermajor TotalEnergies said last week that “Refining & Chemicals results are expected to be exceptional given the very high levels of distillate and gasoline cracks.”

American oil giant ExxonMobil revealed in an SEC filing earlier this month that the rise in industry margins is set to add between $4.4 billion and $4.6 billion to its Q2 results.

At Shell, which recently moved its headquarters from its native Holland to London purely so that it can be in the global trading center for electronic financial services, the refining margin nearly tripled in Q2 compared to Q1 and is expected to add between $800 million and $1.2 billion to the second quarter results of Shell’s Products division compared to the first quarter of 2022.

Therefore, not only are oil stocks in view, but oil prices themselves.

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