Viva Energy flags lower retail earnings after oil spike crimps margins

Viva Energy has issued another profit warning after a jump in oil prices squeezed its fuel margins.

A 100 million litre crude oil tank at Viva Energy’s Geelong Refinery. Picture: Supplied

Oil refiner Viva Energy has issued another profit warning after a jump in the price of oil squeezed its petrol and diesel margins.

Viva’s (VEA) retail earnings will be hit in a range of $30 million to $35m due to challenging trading conditions for the period from January 1 to April 30.

The price of oil has spiked by 32 per cent from $US47 a barrel since the turn of the year to $US63 a barrel currently as geopolitical risks buoy the market along with OPEC production cuts.

“Variability in retail margins is a typical feature of the retail fuel market, influenced by the competitive pricing cycle in major markets along with short term compression and expansion of margins as oil prices and foreign exchange rates rise and fall,” Viva said in a statement, noting its actual earnings will hinge on market conditions in May and June.

Viva’s assets include the Geelong refinery, one of only four in Australia, and a network of more than 20 fuel-import terminals through which it supplies a quarter of the nation’s refined fuel needs. It supplies fuel to 50 airports around Australia and also operates 1100 petrol stations throughout the country.

Its annual net profit missed prospectus forecasts in February by nearly 10 per cent as weaker than expected Asian refining margins hit returns at its Geelong refinery.

However, Viva’s refining margin for Geelong improved to $US6.50 a barrel in March compared with $US3.90 in February.

Macquarie says this improvement in refining margins which beat its forecasts could lead to upside for Viva’s first half refining earnings and offset any retail fuel pricing weakness.

“It is this strength that we believe could offset the weakness in retail fuel pricing, even with the $30-35m weakness in retail, if refining strength continues, this could easily be absorbed,” Macquarie said.

It also noted the market had yet to see the implications of Viva’s move to rework a decade-long deal with supermarket giant Coles which has given it control over setting fuel prices. Viva hopes it will allow the resurrection of its underperforming petrol unit which has suffered from high pump prices trimming sales and eroding its market share.

“We have yet to see what impact Viva taking control of fuel board pricing will have. Thus whilst the retail downgrade is disappointing, we do not believe it cannot be made back,” Macquarie said.

Viva shares fell 1.2 per cent to $2.47 on Monday.