Australian fuel supplier Ampol expects the reopening of China’s economy following the end of its long-running zero-COVID policy to boost demand and tighten the market further this year, raising the likelihood that prices at the bowser could remain elevated.

Ampol, the nation’s largest provider of petrol, diesel and aviation fuel, reported on Monday that its bottom-line profit had jumped 42 per cent in 2022 to $795 million during a year of extraordinary upheaval for the global energy market.

The price of oil and transport fuels soared worldwide, as Western nations imposed rolling sanctions on Russian fuels to starve Moscow of revenue it needed to fund the war, at the same time as demand increased due to economies re-emerging from pandemic lockdowns.

Profit margins from processing crude oil into transport fuels at Ampol’s Lytton refinery in Brisbane were well above historical averages for the year at $US17.86 ($25) a barrel, up from $US7.50 a year before. Unleaded petrol in Australia was selling at about $2 a litre for much of 2022, and has returned to as high as $1.90 this month, according to the Australian Institute of Petroleum.

Ampol managing director Matt Halliday said the Lytton refinery had performed strongly during the period, enabling it to capitalise on the period of heightened margins. He said Ampol expected the refiner market to remain “relatively tight” this year as the reopening of the Chinese economy lifted China’s domestic fuel needs and accelerated the recovery in jet fuel demand.

“We saw exports of fuel products out of China increase quite a bit in the fourth quarter, but as China is reopening, what that means is a lot of that production starts to be redirected domestically as they are supporting their own fuel needs,” he said. “That tends to tighten the product market.”

On the company’s preferred metric of underlying earnings, Ampol reported a 124 per cent full-year increase to $1.3 billion, a record high, enabling it to significantly boost shareholder returns.

Shareholders would receive a final dividend of $1.05 per share declared, as well as a special dividend of 50¢ a share, the company said.

Halliday said it had been a strong start to 2023 for the oil refinery, with margins climbing past $US18 a barrel, and fuel volumes and sales increasing.

“It’s a volatile world out there, that’s probably going to remain the case, but Ampol’s integrated value chain has been tested, and I think delivered strongly in 2022,” he said. “We intend to continue to do so into 2023 and beyond.”
UBS analyst Joseph Wong on Monday said Ampol’s result was in line with expectations, while solid growth and the special dividend should be received well by the market.

“Refining margins are expected to remain strong as continued uncertainty regarding sanctions on Russian refined product should support middle distillate prices,” Wong said.

“The return of net migration to Australia should see fuel volumes continue to improve.”

The bumper profit marks a dramatic turnaround for the fortunes of fuel suppliers in Australia and around the world, which were hammered during 2020 and 2021 as COVID-19 restrictions kept people indoors, cars parked in driveways and planes grounded.

During the depths of the crisis, spiralling losses prompted Ampol to launch a review into the future of its Lytton oil refinery in Brisbane, which employs 550 people, and consider shutting it for good.

Two other oil refineries — ExxonMobil’s Altona plant in Victoria and BP’s in Perth — closed their doors amid the unprecedented collapse in demand for petrol, diesel and jet fuel. But after reaching a rescue deal with the federal government, Ampol and rival refiner Viva Energy have since agreed to keep Australia’s two remaining refineries open until at least mid-2027.

Extracted in full from: Ampol posts record full-year profit, lifts dividends (