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Oil prices and demand tripled NIS profits - Serbia Business

Oil prices and demand tripled NIS profits

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The Oil Industry of Serbia (NIS) operated with a net profit of 25.7 billion dinars in the third quarter, which is more than a three-fold increase compared to the same period of the previous year, according to data from the consolidated financial report. Despite these results, NIS failed to reach again the record results from the previous quarter.

On the other hand, it became clear that the oil company will record the best year of its existence.

The main reasons for the growth of the company’s profitability recorded in the previous two quarters are higher prices of oil and oil derivatives, as well as higher demand for oil due to the lifting of bans related to the corona virus pandemic. The higher demand for oil could also be affected by the lower availability of natural gas, necessary for the production of electricity, according to a report published on Friday.

“The growth of world oil demand in 2022 is at the usual level of 3.1 million barrels per day. A trend of additional growth in oil demand due to the use of the fuel in the production of electricity has been observed”, the report states.

The price of Brent oil has fallen from the highs reached after the outbreak of the war in Ukraine, but is still at a level about 30 percent higher than at the beginning of the year.

The company’s total indebtedness to banks decreased by three percent year-on-year, both in the third quarter and in the first nine months of the year.

Record year, dividend yield up to 20 percent

NIS certainly expects a record year, and a dividend yield of 15 to 20 percent, according to Momentum securities chief broker Nenad Gujaničić. In response to Bloomberg Adria’s questions, Gujaničić states that such results cannot be expected in the fourth quarter due to the very nature of the oil industry, which records the highest income in the third quarter.

Analysts of Bloomberg Adria agree with these views, stating that the results now, after nine months, are better than the previous record-breaking years for NIS.

“Higher revenues from sales were not only influenced by the continuous strengthening of oil prices, but also by the increase in sold quantities: in the retail segment by almost 19 percent and in the wholesale segment by 13 percent. During the year, NIS guaranteed lower prices for agricultural producers and ensured uninterrupted fuel delivery in the period of introduction of restrictions on retail prices, which had an impact on the increase in sold quantities”, said the analytical team. 

“The results achieved in the third quarter exceeded the market’s expectations, and it was expected that they would be weaker than the record second quarter when the price of crude oil recorded its multi-year high. When it comes to the current quarter, we should also expect good results, but certainly far weaker than the third quarter, which is normally the strongest quarter in business considering the tourist season and generally higher fuel consumption”, said Gujaničić.

The company’s profit in 2022 will certainly be record high, which will benefit all shareholders, including the state, predicts Gujaničić.

Regarding geopolitical issues, which are inevitable considering the share that the Russian company Gazprom has in NIS, Gujaničić adds that the determination of Serbia in relation to the war in Ukraine can play a role in the company’s operations, but not in a direct way.

“The foreign policy position of our country certainly cannot directly affect NIS, but any complication of the situation could make its business more difficult because it is not only about the procurement of crude oil, but also the purchase of technological equipment and the maintenance of refineries”, concludes the broker.

Falling oil prices will reduce profits

As lower oil prices are expected for 2023, and NIS is not able to buy cheaper Russian oil, this company’s profit will be lower, according to Bloomberg Adria analysts.

“Nevertheless, we do not expect to generate losses because that would require a drop in prices to extremely low levels, which is not our basic scenario,” the analysts state.

Profitability will also be positively affected by investments that, despite a seven percent decrease on an annual basis, have improved processing capacities.

“The previous period was marked by large investments in the modernization of processing capacities, which enabled the processing of larger quantities of products with greater added value, which had an additional impact on the growth of profitability”, said the analytical team.

The production is slightly smaller

Despite the growth in income, oil and gas production in the first nine months, but also in the period between July and September, decreased slightly.

Thus, in the third quarter, 296.3 conditional tons of oil and gas were produced, which is two percent less compared to the same period in 2021.

Domestic oil production fell by one percent both in the quarter and in the first nine months, according to data from the financial report.

The total turnover of oil derivatives remained almost unchanged, with a slight growth of 0.1 percent, while the share of retail (28 percent growth) and wholesale (16 percent growth) in Serbia’s turnover increased significantly. The volume of retail and wholesale sales abroad decreased by 19 and 76 percent year-on-year from July to September.

At the end of September, stocks were increased by 78 percent compared to the end of the previous year. This can be understood as the provision of quantities for the sake of “continuity of production and sales, and before the announced restrictions on the purchase of Russian oil”, Bloomberg Adria analysts explain, Bloomberg Adria writes.