Soaring margins fuel Ampol and Viva Energy shares to multi-year highs

“While this environment continues into May, oil markets remain extremely volatile, with elevated crude premia, higher shipping costs, and rising energy costs (gas and electricity), providing some longer-term headwinds.”

Shares in Viva rose nearly 3 per cent to hit their highest level since November 2019.

The rally in Viva spilled over to Ampol, which saw shares rally nearly 3.5 per cent to hit their highest since January 2020.

Ampol last month reported first quarter 2022 profits totalled $274.4 million, up 57 per cent compared to the same quarter one year earlier.

“The result again demonstrates the quality and resilience of the Ampol integrated supply chain. The business has successfully managed the short-term impacts of omicron, significant flooding events and the unprecedented volatility caused by the Russia and Ukraine conflict,” said Steven Gregg, Ampol’s chairman.

Ampol this week completed the acquisition of New Zealand fuels retailer Z Energy for $NZ1.97 billion, a deal that will see the company use its trading arm to help supply the New Zealand market, where the lone refinery is set to be converted into a fuel import terminal.

The bumper profits come a year after the federal government last May said it would pay Ampol and Viva Energy to keep producing amid heightened fears about Australia’s energy security as both companies struggled against larger Asian refineries and COVID-19 lockdowns.

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

The federal assistance had been seen as a political ploy ahead of an election, but Prime Minister Scott Morrison said the decision was effectively a choice between paying the money or losing the 1250 jobs and paying another 1¢ per litre for fuel.

Ampol had just months earlier said it would review whether to keep open the Brisbane-based refinery, which was eventually safeguarded by the government assistance package.

Australia’s refining capacity has been declining for more than a decade and the COVID-19 crisis accelerated the situation. It severely reduced the demand for jet fuel, cut the use of petrol and diesel, all while driving down refining margins.

Consequently, two of the remaining four refineries closed – the BP facility at Kwinana in Western Australia, and the ExxonMobil plant at Altona, Victoria – leaving only the Australian-owned Ampol plant in Brisbane and predominantly Dutch-owned Viva Energy’s Geelong plant.

Those closures had stoked economic and defence security issues, and if Australia’s last two refiners had closed, the nation would have been dependent on imports for jet fuel, petrol and diesel.