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Despite worldwide changes, multinationals focus on mobile workforces to support career growth and ensure global competitiveness

Mercer’s annual Cost of Living Survey finds African, Asian, and European cities dominate the list of most expensive locations for working abroad

  • Driven by rise in Canadian dollar since the last survey period, Canadian cities climb higher in the rankings
  • Due to more rapidly rising rents, Vancouver (107) pulls away from Toronto (119) to cement its position as the most expensive city in the Canadian ranking
  • Ranking 152, Ottawa is the least expensive city in Canada

In a rapidly changing world, mobility has become a core component of multinational organizations’ global talent strategy. To support the growing number of international assignees working in an increased number of locations, organizations are focusing on evaluating assignments from a cultural perspective, preparing for regional and lateral moves, and modifying compensation approaches to stay competitive. As organizations grapple with these challenges, they are working hard to accommodate the needs of their workforce and to support employees’ careers. According to Mercer’s 2017 Global Talent Trends Study, fair and competitive pay as well as opportunities for promotion are top priorities for employees this year – not surprising given the current climate of uncertainty and change.

As a result, multinational organizations are carefully assessing the cost of expatriate packages for their international assignees. Mercer’s 23rd annual Cost of Living Survey finds that factors like instability of housing markets and inflation for goods and services contribute to the overall cost of doing business in today’s global environment.

“Globalization of the marketplace is well documented with many companies operating in multiple locations around the world and promoting international assignments to enhance the experience of future managers,” said Ilya Bonic, Senior Partner and President of Mercer’s Career business. “There are numerous personal and organizational advantages for sending employees overseas, whether for long- or short-term assignments, including career development by obtaining global experience, the creation and transfer of skills, and the re-allocation of resources.”

Mercer’s 2017 Cost of Living Survey finds Asian and European cities – particularly Hong Kong (2), Tokyo (3), Zurich (4), and Singapore (5) – top the list of most expensive cities for expatriates. The costliest city, driven by cost of goods and security, is Luanda (1), the capital of Angola. Other cities appearing in the top 10 of Mercer’s costliest cities for expatriates are Seoul (6), Geneva (7), Shanghai (8), New York City (9), and Bern (10). The world’s least expensive cities for expatriates, according to Mercer’s survey, are Tunis (209), Bishkek (208), and Skopje (206).

Mercer's authoritative survey is one of the world’s most comprehensive, and is designed to help multinational companies and governments determine compensation allowances for their expatriate employees. New York is used as the base city and all cities are compared against it. Currency movements are measured against the US dollar. The survey includes over 400 cities across five continents and measures the comparative cost of more than 200 items in each location, including housing, transportation, food, clothing, household goods, and entertainment.

“While historically mobility, talent management, and rewards have been managed independently of one another, organizations are now using a more holistic approach to enhance their mobility strategies. Compensation is important to be competitive and must be determined appropriately based on the cost of living, currency, and location,” said Mr. Bonic.

THE AMERICAS
Cities in the United States are the most expensive locations in the Americas, with New York City (9) ranked as the costliest city, climbing two spots from last year. San Francisco (22) and Los Angeles (24) follow, having climbed four and three spots respectively. Among other major US cities, Chicago (32) is up two places, Boston (51) is down four places, and Seattle is up seven places. Portland (115) and Winston Salem (140) remain the least expensive surveyed cities for expatriates in the US.

Nathalie Constantin-Métral, Principal at Mercer with responsibility for compiling the survey ranking, said, “Overall, US cities either remained stable in the ranking or have slightly increased due to the movement of the US dollar against the majority of currencies worldwide.”

In South America, Brazilian cities Sao Paulo (27) and Rio de Janeiro (56) surged 101 and 100 spots, respectively, due to the strengthening of the Brazilian real against the US dollar. Buenos Aires, the Argentina capital and financial hub ranked 40 followed by Santiago (67) and Montevideo, Uruguay (65), which jumped forty-one and fifty-four places, respectively. Other cities in South America that rose on the list of costliest cities for expatriates include Lima (104) and Havana (151). Dropping from 94th position, San Jose, Costa Rica (110) experienced the largest drop in the region as the US dollar strengthened against the Costa Rican colon. Caracas in Venezuela has been excluded from the ranking due to the complex currency situation. Depending on which exchange rate is being used, the city would arrive at the top or at the bottom of the ranking.

“Inflationary concerns continued to cause some South American cities to rise in the ranking, whereas the weakening of the local currencies in some of the region’s cities caused them to drop in the ranking,” said Ms. Constantin-Métral.

Up thirty-five places from last year, Vancouver (107) has overtaken Toronto (119) to become the most expensive Canadian city in the ranking, followed by Montreal (129) and Calgary (143). Ranking 152, Ottawa is the least expensive city in Canada. “The Canadian dollar has appreciated in value triggering the major jumps in this year’s ranking,” explained Ms. Constantin-Métral.

“Although the cost of living in Vancouver or Toronto may be high for locals, both cities remain attractive destinations for expatriates placed by organizations outside the country,” says Gordon Frost, Partner and Leader of Mercer Canada’s Career business. “Global costs give us some perspective: compared to the rest of the world, even with a strong dollar, Canada remains relatively affordable.”

EUROPE, THE MIDDLE EAST, AND AFRICA
Only three European cities remain in the top 10 list of most expensive cities for expatriates.

Zurich (4) is still the most costly European city on the list, followed by Geneva (7) and Bern (10). Moscow (14) and St. Petersburg (36) surged fifty-three and one hundred and sixteen places from last year respectively, due to the strong appreciation of the ruble against the US dollar and the cost of goods and services. Meanwhile, London (30), Aberdeen (146) and Birmingham (147) dropped thirteen, sixty-one and fifty-one spots respectively as a result of the pound weakening against the US dollar following the Brexit vote. Copenhagen (28) fell four places from 24 to 28. Oslo (46) is up thirteen spots from last year, while Paris fell eighteen places to rank 62.

Other Western European cities dropped in the rankings as well, mainly due to the weakening of local currencies against the US dollar. Vienna (78) and Rome (80) fell in the ranking by 24 and 22 spots, respectively. The German cities of Munich (98), Frankfurt (117), and Berlin (120) dropped significantly as did Dusseldorf (122) and Hamburg (125).

“Despite moderate price increases in most of the European cities, European currencies have weakened against the US dollar, which pushed most Western European cities down in the ranking,” explained Ms. Constantin-Métral. “Additionally, other factors like the Eurozone’s economy have impacted these cities.”

As a result of local currencies depreciating against the US dollar, some cities in Eastern and Central Europe, including Prague (132) and Budapest (176) fell in the ranking, while Minsk (200) and Kiev (163) jumped four and thirteen spots, respectively, despite stable accommodations in these locations.

Ranking 17, Tel Aviv jumped two spots from last year and continues to be the most expensive city in the Middle East for expatriates followed by Dubai (20), Abu Dhabi (23), and Riyadh (52), which have all climbed in this year’s ranking. Jeddah (117), Muscat (92), and Doha (81) are among the least expensive cities in the region. Cairo (183) is the least expensive city in the region plummeting ninety-two spots from last year following a major devaluation of its local currency.

“Egypt’s decision to allow its currency to float freely in return for a 12 billion dollar loan over three years to help strengthen its economy resulted in the massive devaluation of the Egyptian Pound by more than 100% against the US dollar, pushing Cairo down the ranking” said Ms. Constantin-Métral.”

Quite a few African cities continue to rank high in this year’s survey, reflecting high living costs and prices of goods for expatriate employees. Luanda (1) takes the top spot as the most expensive city for expatriates across Africa and globally despite its currency weakening against the US dollar. Luanda is followed by Victoria (14), Ndjamena (16), and Kinshasa (18). Tunis falls six spots to rank 209 as the least expensive city in the region and overall.

ASIA PACIFIC
Five of the top 10 cities in this year’s ranking are in Asia. Hong Kong (2) is the most expensive city as a result of its currency pegged to the US dollar, which drove up the cost of accommodations locally. This global financial center is followed by Tokyo (3), Singapore (5), Seoul (6), and Shanghai (8).

“The strengthening of the Japanese yen along with the high costs of expatriate consumer goods and a dynamic housing market pushed Japanese cities up in the ranking,” said Ms. Constantin-Métral. “However, the majority of Chinese cities fell in the ranking due to the weakening of the Chinese yuan against the US dollar.”

Australian cities have all experienced further jumps up the global ranking since last year due to the strengthening of the Australian dollar. Sydney (25), Australia’s most expensive city for expatriates, gained seventeen places in the ranking along with Melbourne (46) and Perth (50) which went up twenty-five and nineteen spots, respectively.

India’s most expensive city, Mumbai (57), climbed twenty-five places in the ranking due to its rapid economic growth, inflation on the goods and services basket and a stable currency against the US Dollar. This most populous city in India is followed by New Delhi (99) and Chennai (135) which rose in the ranking by thirty-one and twenty-three spots, respectively. Bengaluru (166) and Kolkata (184), the least expensive Indian cities, climbed in the ranking as well.

Elsewhere in Asia, Bangkok (67) jumped seven places from last year. Jakarta (88) and Hanoi (100) also rose in the ranking, up five and six places, respectively. Karachi (201) and Bishkek (208) remain the region’s least expensive cities for expatriates.

Mercer produces individual cost of living and rental accommodation cost reports for each city surveyed. For more information on city rankings, visit www.mercer.com/col. To purchase copies of individual city reports, visit https://mobilityexchange.mercer.com/multinational-approach-cost-of-living-data or call Mercer Client Services in Warsaw on +48 22 434 5383.

Mercer Cost of Living Survey – Worldwide Rankings 2017
(Mercer international basket, including rental accommodation costs)Rank as of MarchCityCountry2016201721LUANDAAngola12HONG KONGHong Kong53TOKYOJapan34ZURICHSwitzerland45SINGAPORESingapore156SEOULSouth Korea87GENEVASwitzerland78SHANGHAIChina119NEW YORK CITYUnited States1310BERNSwitzerland1011BEIJINGChina3012TIANJINChina1213SHENZHENChina6714MOSCOWRussia1614VICTORIASeychelles916NDJAMENAChad1917TEL AVIVIsrael618KINSHASADem. Rep. of the Congo1819GUANGZHOUChina2120DUBAIUnited Arab Emirates2221OSAKAJapan2622SAN FRANCISCOUnited States2523ABU DHABIUnited Arab Emirates2724LOS ANGELESUnited States4225SYDNEYAustralia4325TAIPEITaiwan12827SAO PAULOBrazil2428COPENHAGENDenmark1329LAGOSNigeria1730LONDONUnited Kingdom2331BRAZZAVILLECongo3432CHICAGOUnited States2933NANJINGChina2833LIBREVILLEGabon5435NAGOYAJapan15236ST.PETERSBURGRussia3736HONOLULUUnited States4538DHAKABangladesh3839WASHINGTONUnited States4140BUENOS AIRESArgentina4541MIAMIUnited States3142SHENYANGChina3242NOUMEANew Caledonia5642ABIDJANCôte d'Ivoire3345QINGDAOChina7146MELBOURNEAustralia3446CHENGDUChina5946OSLONorway4049DJIBOUTIDjibouti6950PERTHAustralia4751BOSTONUnited States5752RIYADHSaudi Arabia5052BEIRUTLebanon4754ACCRAGhana7155MANAMABahrain15656RIO DE JANEIROBrazil8257MUMBAIIndia6657ASHGABATTurkmenistan5059AMMANJordan2059ABUJANigeria9861AUCKLANDNew Zealand6262DALLASUnited States4462PARISFrance6164WHITE PLAINSUnited States11965MONTEVIDEOUruguay4766DUBLINIreland10867SANTIAGOChile3967YANGONMyanmar7467BANGKOKThailand5070YAOUNDECameroon9871CANBERRAAustralia5071MILANItaly9671BRISBANEAustralia7574HOUSTONUnited States6075PORT OF SPAINTrinidad & Tobago8376SEATTLEUnited States10277ADELAIDEAustralia5478VIENNAAustria6779SAN JUANPuerto Rico5880ROMEItaly7681DOHAQatar7181MORRISTOWNUnited States7883ATLANTAUnited States6284BANGUICentral African Republic6485AMSTERDAMNetherlands12386WELLINGTONNew Zealand9186MINNEAPOLISUnited States8188PANAMA CITYPanama9388JAKARTAIndonesia6488HELSINKIFinland3691CONAKRYGuinea9492MUSCATOman7993DAKARSenegal7094DOUALACameroon10395DETROITUnited States8095MANILAPhilippines8897HO CHI MINH CITYVietnam7798MUNICHGermany13099NEW DELHIIndia110100CLEVELANDUnited States108100ST. LOUISUnited States106100HANOIVietnam88100BANDAR SERI BEGAWANBrunei86104BRUSSELSBelgium141104LIMAPeru84106STOCKHOLMSweden142107VANCOUVERCanada86107LUXEMBOURGLuxembourg112107PITTSBURGHUnited States94110SAN JOSECosta Rica126111GUATEMALA CITYGuatemala116111NAIROBIKenya103111KUWAIT CITYKuwait105111MADRIDSpain118115PHNOM PENHCambodia117115PORTLANDUnited States88117FRANKFURTGermany121117JEDDAHSaudi Arabia143119TORONTOCanada100120BERLINGermany110121BARCELONASpain107122DUSSELDORFGermany137123TASHKENTUzbekistan127123QUITOEcuador113125HAMBURGGermany190126BRASILIABrazil114126RIGALatvia115126BAMAKOMali155129MONTREALCanada122130POINTE A PITREGuadeloupe130130CASABLANCAMorocco139132COLOMBOSri Lanka124132PRAGUECzech Republic145134PORT AU PRINCEHaiti158135CHENNAIIndia143136ADDIS ABABAEthiopia134137LISBONPortugal132137LYONFrance124139COTONOUBenin147140WINSTON SALEMUnited States129141STUTTGARTGermany101142ISTANBULTurkey162143CALGARYCanada137144ATHENSGreece132144LOMETogo85146ABERDEENUnited Kingdom139147KIGALIRwanda96147BIRMINGHAMUnited Kingdom136147BRATISLAVASlovakia148150SANTO DOMINGODominican Republic170151HAVANACuba171152OTTAWACanada146153OUAGADOUGOUBurkina Faso190153BOGOTAColombia152155KINGSTONJamaica160156SAN SALVADOREl Salvador157156HARAREZimbabwe149158NIAMEYNiger159159ZAGREBCroatia150160TALLINNEstonia119161GLASGOWUnited Kingdom154161LJUBLJANASlovenia176163KIEVUkraine174164DAR ES SALAAMTanzania151165KUALA LUMPURMalaysia180166BENGALURUIndia167167VILNIUSLithuania160168NURNBERGGermany168169RABATMorocco134170BELFASTUnited Kingdom175171PORT LOUISMauritius165172LEIPZIGGermany180173ISLAMABADPakistan162173LIMASSOLCyprus196175ALMATYKazakhstan165176BUDAPESTHungary169177MEXICO CITYMexico183178ASUNCIONParaguay200179LUSAKAZambia177180WARSAWPoland172181BUCHARESTRomania172182BAKUAzerbaijan91183CAIROEgypt182184SOFIABulgaria194184KOLKATAIndia187186KAMPALAUganda185187ALGIERSAlgeria164188MAPUTOMozambique186189TIRANAAlbania178189NOUAKCHOTTMauritania205191JOHANNESBURGSouth Africa179192BANJULGambia184193LA PAZBolivia192194MANAGUANicaragua189195YEREVANArmenia201196GABORONEBotswana188197TEGUCIGALPAHonduras193198BELGRADESerbia208199CAPE TOWNSouth Africa204200MINSKBelarus201201KARACHIPakistan195202SARAJEVOBosnia and Herzegovina197203MONTERREYMexico198204TBILISIGeorgia206205BLANTYREMalawi209206WINDHOEKNamibia199206SKOPJEMacedonia207208BISHKEKKyrgyzstan203209TUNISTunisia

Source: Mercer’s 2017 Cost of Living Survey

NOTES FOR EDITORS
The list of rankings is provided to journalists for reference and should not be published in full. The top 10 and bottom 10 cities may be reproduced in a table.

The figures for Mercer’s cost of living and rental accommodation costs comparisons are derived from a survey conducted in March 2017. Exchange rates from that time and Mercer’s international basket of goods and services have been used as base measurements.

Governments and major companies use data from this survey to protect the purchasing power of their employees when transferred abroad; rental accommodation costs data is used to assess local expatriate housing allowances. The choice of cities surveyed is based on the demand for data.

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EIA forecasts the U.S. will import more petroleum than it exports in 2021 and 2022

Throughout much of its history, the United States has imported more petroleum (which includes crude oil, refined petroleum products, and other liquids) than it has exported. That status changed in 2020. The U.S. Energy Information Administration’s (EIA) February 2021 Short-Term Energy Outlook (STEO) estimates that 2020 marked the first year that the United States exported more petroleum than it imported on an annual basis. However, largely because of declines in domestic crude oil production and corresponding increases in crude oil imports, EIA expects the United States to return to being a net petroleum importer on an annual basis in both 2021 and 2022.

EIA expects that increasing crude oil imports will drive the growth in net petroleum imports in 2021 and 2022 and more than offset changes in refined product net trade. EIA forecasts that net imports of crude oil will increase from its 2020 average of 2.7 million barrels per day (b/d) to 3.7 million b/d in 2021 and 4.4 million b/d in 2022.

Compared with crude oil trade, net exports of refined petroleum products did not change as much during 2020. On an annual average basis, U.S. net petroleum product exports—distillate fuel oil, hydrocarbon gas liquids, and motor gasoline, among others—averaged 3.2 million b/d in 2019 and 3.4 million b/d in 2020. EIA forecasts that net petroleum product exports will average 3.5 million b/d in 2021 and 3.9 million b/d in 2022 as global demand for petroleum products continues to increase from its recent low point in the first half of 2020.

U.S. quarterly crude oil production, net trade, and refinery runs

Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO), February 2021

EIA expects that the United States will import more crude oil to fill the widening gap between refinery inputs of crude oil and domestic crude oil production in 2021 and 2022. U.S. crude oil production declined by an estimated 0.9 million b/d (8%) to 11.3 million b/d in 2020 because of well curtailment and a drop in drilling activity related to low crude oil prices.

EIA expects the rising price of crude oil, which started in the fourth quarter of 2020, will contribute to more U.S. crude oil production later this year. EIA forecasts monthly domestic crude oil production will reach 11.3 million b/d by the end of 2021 and 11.9 million b/d by the end of 2022. These values are increases from the most recent monthly average of 11.1 million b/d in November 2020 (based on data in EIA’s Petroleum Supply Monthly) but still lower than the previous peak of 12.9 million b/d in November 2019.

February, 18 2021
The Perfect Storm Pushes Crude Oil Prices

In the past week, crude oil prices have surged to levels last seen over a year ago. The global Brent benchmark hit US$63/b, while its American counterpart WTI crested over the US$60/b mark. The more optimistic in the market see these gains as a start of a commodity supercycle stemming from market forces pent-up over the long Covid-19 pandemic. The more cynical see it as a short-term spike from a perfect winter storm and constrained supply. So, which is it?

To get to that point, let’s examine how crude oil prices have evolved since the start of the year. On the consumption side, the market is vacillating between hopeful recovery and jittery reactions as Covid-19 outbreaks and vaccinations lent a start-stop rhythm to consumption trends. Yes, vaccination programmes were developed at lightning speed; and even plenty of bureaucratic hiccoughs have not hampered a steady rollout across the globe. In the UK, more than 20% of adults have received at least one dose of the vaccines, with the USA not too far behind. Israel has vaccinated more than 75% of its population, and most countries should be well into their own programmes by the end of March. That acceleration of vaccinations has underpinned expectations of higher oil demand, with hopes that people will begin to drive again, fly again and buy again. But those hopes have been occasionally interrupted by new Covid-19 clusters detected and, more worryingly, new mutations of the virus.

Against this hopeful demand picture, supply has been managed. Squabbling among the OPEC+ club has prevented a more aggressive approach to managing supply than kingpin Saudi Arabia would like, but OPEC+ has still managed to hold itself together to placate the market that crude spigots will remain restrained. And while the UAE has successfully shifted OPEC+ quota plan for 2021 from quarterly adjustments to monthly, Saudi Arabia stepped into the vacuum to stamp its authority with a voluntary 1 million barrels per day cut. The market was impressed.

That combination of events over January was enough to move Brent prices from the low US$50/b level to the upper US$50/b range. However, US$60/b remained seemingly out of reach. It took a heavy dusting of snow across Texas to achieve that.

Winter weather across the northern hemisphere seemed harsher than usual this year. Europe was hit by two large continent-wide storms, while the American Northeast and Pacific Northwest were buffeted with quite a few snowstorms. Temperatures in East Asia were fairly cold too, which led to strong prices for natural gas and LNG to keep the population warm. But it was a major snowstorm that swept through the southern United States – including Texas – that had the largest effect on prices. Some areas of Texas saw temperatures as low as -18 degrees Celsius, while electricity demand surged to the point where grids failed, leaving 4.3 million people without power. A national emergency was declared, with over 150 million Americans under winter storm warning conditions.

 

For the global oil complex, the effects of the storm were also direct. Some of the largest oil refineries in the world were forced to shut down due to the Arctic conditions, further disrupting power and fuel supplies. All in all, over 3 mmb/d of oil processing capacity had to be idled in the wake of the storm, including Motiva’s Port Arthur, ExxonMobil’s Baytown and Marathon’s Galveston Bay refineries. And even if the sites were still running, they would have to contend to upstream disruptions: estimates suggest that crude oil production in the prolific Permian Basin dropped by over a million barrels per day due to power outages, while several key pipelines connecting Cushing, Oklahoma to the Texas Gulf Coast were also forced to shutter.

That perfect storm was enough to send crude prices above the US$60/b level. But will it last? The damage from the Texan snowstorm has already begun to abate, and even then crude prices did not seem to have the appetite to push higher than US$63/b for Brent and US$60/b for WTI.

Instead, the key development that should determine the future range for crude prices going into the second quarter of 2021 will be in early March, when the OPEC+ club meets once again to decide the level of its supply quotas for April and perhaps beyond. The conundrum facing the various factions within the club is this: at US$60/b, crude oil prices are not low enough to scare all members in voting for unanimous stricter quotas and also not high enough to rescind controlled supply. Instead, prices are at a fragile level where arguments can be made both ways. Russia is already claiming that global oil markets are ‘balanced’, while Saudi Arabia is emphasising the need for caution in public messaging ahead of the meeting. Saudi Arabia’s voluntary supply cut will also expire in March, setting up the stage for yet another fractious meeting. If a snow overrun Texans was a perfect storm to push crude prices to a 13-month high, then the upcoming OPEC+ meeting faces another perfect storm that could negate confidence. Which will it be? The answer lies on the other side of the storm.

Market Outlook:

  • Crude price trading range: Brent – US$58-61/b, WTI – US$60-63/b
  • Better longer-term prospects for fuels demand over 2021 and a severe winter storm in the southern United States that idled many upstream and downstream facilities sent global crude oil prices to their highest levels since January 2021
  • Falling levels at key oil storage locations worldwide are also contributing to the crude rally, with crude inventories in Cushing falling to a six-month low and reports of drained storage tanks in the US Gulf Coast, the Caribbean and East Asia
February, 17 2021
The State of Industry: Q4 2020 Financials – A Fragile Recovery

Much like the year itself, the final quarter of 2020 proved to be full of shocks and surprises… at least in terms of financial results from oil and gas giants. With crude oil prices recovering on the back of a concerted effort by OPEC+ to keep a lid on supply, even at the detriment of their market share, the fourth quarter of 2020 was supposed to be smooth sailing. The tailwind of stronger crude and commodity prices, alongside gradual demand recovery, was expected to have smoothen out the revenue and profit curves for the supermajors.

That didn’t happen.

Instead, losses were declared where they were not expected. And where profits were to be had, they were meagre in volume. And crucially, a deeper dive into the financial results revealed worrying trends in the cash flow of several supermajors, calling into question the ability of these giants to continue on their capital expenditure and dividend plans, and the risks of resorting to debt financing in order to appease investors and yet also continue expanding.

Let’s start with the least surprising result of all. For months, ExxonMobil had been signalling that it would be taking a massive writedown on its upstream assets in Q4 2020, which could lead to a net loss for the quarter and the year. Unlike its peers, ExxonMobil had resisted making writedowns on the value of its crude-producing assets earlier in 2020. At the time, it stated that it had already built caution in the value assessments of those assets, reflecting ‘fair value’; not so long after that bold statement, ExxonMobil has been forced to backtrack and make a US$20.2 billion downward adjustment. Unusually, that meant that non-cash impairments aside, ExxonMobil actually eked out a tiny profit of US$110 million for the quarter on the strength of margins in the chemicals segment, but a full year loss of US$22.4 billion: the first ever annual loss since Exxon and Mobil merged in 1998. This was better than expected by Wall Street analysts, who would also be cheering the formation of ExxonMobil Low Carbon Solutions, in which the group would pump some US$3 billion through 2025 to reduce its greenhouse gas emissions by 20% from 2016 levels. That acknowledgement of a carbon neutral future is still far less ambitious than its European counterparts, but is a clear sign that ExxonMobil is starting to take the climate change element of its business more seriously.

If ExxonMobil managed to surprise in a good way, then its closest American rival did the opposite. Chevron had been outperforming ExxonMobil in quarterly results for a while now, but in Q4 2020 retreated with a net loss of US$665 million. That was narrower than the US$6.6 billion loss declared in Q4 2019, but still a shock since analysts were expecting a narrow profit. Calling 2020 ‘a year like no other’, the headwinds facing Chevron in Q4 2020 were the same facing all majors and supermajors, despite gains in crude prices, refining margins and fuel sales were still soft. Chevron’s cash flow was also a concern – as was ExxonMobil’s – which prompted chatter that the two direct descendants of JD Rockefeller’s Standard Oil were considering a merger. If so, then there is at least alignment on the climate topic: Chevron is also following the trail blazed by European supermajors in embracing a carbon neutral future, with CEO Michael Wirth conceding that Chevron may ‘not be an oil-first company in 2040’.

On the European side of the pond, that same theme of lowered downstream performance dragging down overall performance continued. But unlike the US supermajors, the likes of Shell, BP and Total were somewhat insulated from the Covid-19 blows at the peak of the pandemic as their opportunistic trading divisions capitalised on the wild swings in crude and fuel prices. That factor is now absent, with crude prices taking on a steady upward curve. That’s good for the rest of their businesses, but bad for trading, which thrives on uncertainty and volatility. And so BP reported a Q4 net profit of US$115 million, Shell followed with a Q4 net profit of US$393 million and Total closed out the earning season with industry-beating Q4 net profit of US$1.3 billion, above market expectations.

The softness of the financials hasn’t stopped dividend payouts, but has also been used by Europe’s Big Oil to set the tone for the next few decades of their existence. Total and BP paid a hefty premium to secure rights to build the next generation of UK wind farms; Total joined the Maersk-McKinney Moller Center for Zero Carbon Shipping to develop carbon neutral shipping solutions and splashed out on acquiring 2.2 GW of solar power projects in Texas; BP signed a strategic collaboration agreement with Russia’s Rosneft to develop new low carbon solutions; and aircraft carrier KLM took off with the first flight powered by synthetic kerosene that was developed by Shell through carbon dioxide, water and renewables. That’s a lot of a groundwork laid for the future where these giants can be carbon neutral by 2050.

The message from Q4 seems clear. Big Oil has barely begun its recovery from the Covid-19 maelstrom, and the road to a new normal remains long and painful. But this is also an opportunity to pivot; to set a new destination that is no longer business-as-usual, but embraces zero carbon ambitions. Even the American supermajors are slowly coming around, while the European continues to lead. Will majors in Asia, Latin America and Africa/Middle East follow? Let’s see what that attitude will bring over this new decade.

Market Outlook:

  • Crude price trading range: Brent – US$60-62/b, WTI – US$57-59/b
  • The Brent crude benchmark rose above US$60/b level for the first time in over a year, as the demand outlook for fuels improves with the accelerating rollout of Covid-19 vaccines and tight stockpiles brush off worries of oversupply
  • On the latter, the IEA estimated that global stockpiles of crude and fuels in onshore and floating storage has shrunk by 300 million barrels since OPEC+ first embarked on its deep production controls in May; in China, stockpiles are at their lowest level over a 12-month period, with US crude stockpiles also fell by 1 million barrels
  • Despite a tenuous alliance, OPEC+ has continuously reassured the market that it will work to clear the massive oil surplus created by the pandemic-induced demand slump, signalling that despite its internal differences, a repeat of last March’s surprise price war is not on the cards

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February, 10 2021