Shares in Ampol jump 6pc as company rides a margin boon to a bumper quarter

Ampol has delivered a stellar quarter as a result of strong refining margins, sending shares up as much as 6 per cent.

Ampol has reported a 65 per cent jump in third-quarter operating earnings, as soaring refining margins and increased mobility helped prolong a period of financial success for the company.

The result defies concern that demand for petrol and aviation fuels could be crimped by soaring interest rates and a cost-of-living crisis.

Ampol said quarterly earnings before interest and tax totalled $438.2m on a replacement cost basis, which excludes the impact of inventory and foreign exchange changes, a rise of 65 per cent from a year ago.

Shares in Ampol rose as much as 6 per cent after the result, although gains eased by midafternoon. Shares continued to trade up 3.5 per cent.

Australia’s largest fuel retailer said the result was driven by soaring refining margins and strong demand for petrol and aviation fuels after Covid-19 lockdowns.

Refining margins at the Lytton refinery in Queensland hit $US19.69 ($30.84) a barrel during the quarter, well up on a $15.46-per-barrel Ampol record during the same three-month period one year earlier. The company said petrol and diesel product cracks were the biggest drivers of the margin growth.

Ampol said, however, that margins have eased slightly since September 30.

“Since the end of September, gasoline cracks have softened, while middle distillate – diesel and jet – cracks have also eased but remain well above historic averages,” the company said.

Still, the result hints that the margin boon that Ampol and smaller rival Viva have enjoyed for the past couple of years, still has some life – after recent results by both companies led some analysts to conclude the golden era was on the slide.

Soaring margins have been major drivers of the turnaround for Australia’s domestic players.

In May 2021, the then Morrison federal government said it would pay Ampol and Viva Energy to keep producing in a bid to protect Australia’s energy security.

The policy safeguarded the futures of refining in Australia as both businesses have come under sustained pressure from larger Asian refineries and Covid-19 lockdowns.

Australia’s refining capacity has been falling for more than a decade.

The pandemic worsened the situation, severely reducing the demand for jet fuel, cutting the use of petrol and diesel, and driving down refining margins.

Before the government intervened, Ampol was struggling with mounting losses that led the company to launch a review into the future of its Lytton oil refinery in Brisbane.

The government scheme pays Ampol and Viva Energy when refining margins are weak and the subsidies aided both companies in the short term before a rapid turnaround in the market made them ineligible.