Oil major hit by plunge in prices and drop in demand for refined products

BP reported a 66 per cent drop in first-quarter earnings on Tuesday as the fallout from the coronavirus pandemic on the finances of the energy sector began to be felt.
In the three months to March 31, underlying replacement cost profits — BP’s definition of net income and the measure tracked most closely by analysts — were $791m, versus nearly $2.4bn in the same period in 2019.
Although this is higher than consensus estimates of $710m, BP said it was hit by a plunge in energy prices; a drop in demand for fuels and refined products, especially in March; and weaker earnings from its oil trading business and its stake in Russia’s Rosneft.
BP, which was newly confident about its ability to generate more cash at the start of the year, has been thrown into a fresh crisis just as a new chief executive has taken the helm of the company.
“Our industry has been hit by supply and demand shocks on a scale never seen before,” said Bernard Looney, who took over as chief executive in February. “We are taking decisive actions to strengthen our finances — reinforcing liquidity, rapidly reducing spending and costs, driving our cash balance point lower.”
Lockdowns and travel bans to curb the spread of the virus have triggered an oil demand collapse, coinciding with a supply glut and causing an unprecedented crude price drop, forcing the entire sector into cash conservation mode. 
BP said there remains an “exceptional level of uncertainty” regarding the short-term outlook for prices and demand for refined products, such as gasoline and diesel, while many economies remain under lockdown.
Gearing — which BP defines as net debt divided by the sum of net debt plus equity — rose to more than 36 per cent in the first quarter, one of the highest in the sector. Levels above 30 per cent could hinder its ability to return cash to shareholders, analysts said.
Yet BP announced a dividend of 10.5 cents a share for the quarter and, like many of its peers, it is pulling on an array of financial levers to protect these shareholder payouts — from cutting capital spending to issuing bonds.