Peter Ranscombe: Crude price surge should mean profits flow for oil giants

Despite the continued glut in refining capacity depressing margins, average oil costs for the first quarter of 2010 have nearly doubled compared with a year earlier.

During the nadir of the recession in the first quarter of 2009, crude prices averaged just over $41 a barrel – a year later, this figure stands at an average $76.

Demand is still weak but the price is being pushed higher by a combination of recovery hopes for the global economy as well as market speculators driving up prices.

The oil surge – combined with a much weaker pound – has hit motorists, with average petrol prices now at record highs. Yet it is good news for the profits of the oil majors.

Consensus forecasts put underlying profits from BP tomorrow at about $4.8 billion (3.1bn) – almost double its earnings for the first quarter of 2009. Similarly, Shell is likely to make gains on last year's $3.3bn (2.1bn) in first-quarter figures on Wednesday.

Taxpayer-backed Lloyds Banking Group fires the starting gun on first-quarter bank results tomorrow.

Fellow part-nationalised player Royal Bank of Scotland follows with its figures on Wednesday, on the same day it holds its annual meeting for shareholders.

And Barclays – already under fire over executive pay concerns – reports on Friday as it prepares to face investors at its yearly investor gathering.

RBS and Lloyds have shrugged off any recent sector concerns, with share price gains giving the taxpayer a welcome boost at an opportune time for Labour in its election campaign. Both banks have been trading at levels that give the taxpayer a theoretical paper profit.

RBS and Lloyds, now 84 per cent and 41 per cent owned by the state respectively, have benefited from a flurry of broker upgrades that suggest an improving picture in terms of earnings and credit quality.

Pharmaceutical giants GlaxoSmithKline and AstraZeneca will provide updates on trading at the start of a year that is expected to be particularly challenging due to increased competition.

GlaxoSmithKline, which will post first-quarter results on Wednesday, is expected to see the tail end of the swine flu boost, which has given it a much-needed fillip at an otherwise difficult time.

Sales from H1N1 vaccines and treatments in 2010 are expected to match the 883 million seen in 2009, although it is not clear how much of this will come in the first quarter.

GSK has been renegotiating contracts with governments after the pandemic threat receded, but has fared well out of talks with the UK.

It will receive two-thirds of the original value of the deal, even though it will only deliver just over a third – 34.8 million – of the original dose order.

The new deal also includes an undertaking that the UK will purchase an as-yet-undefined amount of the H5N1 bird flu vaccine as well as courses of its anti-viral flu treatment Relenza.

Analysts are pencilling in an 11 per cent rise in profits to 2.1bn in the first quarter, on sales up from 6.8bn to 7.1bn.

But GSK has already warned of tougher conditions once the swine flu sales benefit falls out. The group unveiled plans in February for another 4,000 job cuts to save a further 500m.

Rival AstraZeneca, which reports on Thursday, is facing the same issues as cheaper generic rivals put profits under threat and it has announced 8,000 job cuts to trim its operations.