2021 saw improvements for the oil and gas business. While the COVID-19 pandemic continued unabated, economies adapted and rebounded, and, as that happened, mobility and oil demand began to approach normal levels. Oil, gas and LNG prices topped pre-pandemic levels, and oil and gas company earnings followed. Although things look very different just a few short weeks after close and days after the final earnings call of the quarter, the fourth quarter of 2021 marked a continuation of that trend.
During the fourth quarter, Brent crude prices increased by 8% to an average US$80/bbl, the highest level in seven years. According to OPEC, global oil demand grew 2% between the third and fourth quarters as curbs on international travel and other restrictions on mobility were lifted. At the same time, relentless production discipline kept the market undersupplied and inventories falling. And recent events have moved the globe further toward undersupply.
In gas markets, warmer-than-normal weather in the US combined with recovering production interrupted the rally in Henry Hub prices, and they fell by 31%. In contrast, uncertain Russian supplies and stressed infrastructure drove prices in Europe to unprecedented levels. The continent went into the fourth quarter heating season with low inventory levels and nagging concerns about supply availability, and LNG prices increased by over 90%. Uncertainty has turned to reality and tightness in LNG markets will be with us for the foreseeable future. In refining, margins remained broadly flat compared with the previous quarter.
Earnings reports for the fourth quarter brought uniformly good news. Oil majors reported a combined net income of US$41.3 billion – more than double the US$17.3 billion reported in the previous quarter and a phenomenal turnaround from losses of US$25.8 billion in the fourth quarter of 2020. The majors reported combined cash flows of US$50.2 billion – 16% lower than the previous quarter but more than double year-ago levels.
As is almost always the case, questions about financial matters dominated earnings calls, accounting for nearly half of the total. The share of questions fell from 62% in the previous quarter, no doubt a result of strong financials. Healthy cash flows also explained analyst interest in shareholder distributions, and those questions accounted for 8% of the total. Analysts were focused on how payout ratios and the pace of share buyback plans might change in the event of stronger-than-expected commodity prices, earnings and cash flows. Analysts mused openly about what companies might do with even more free cash flow.