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Caltex share price higher as petrol sales halve

The Caltex Australia Limited (ASX: CTX) share price is pushing higher today as the company released an announcement this morning, providing the market with a trading update and detailing its outlook.

Here’s how the COVID-19 pandemic has impacted fuel demand and how Caltex has responded to the situation.

Why have petrol sales halved?

Caltex informed the market that unleaded petrol sales from its convenience retail division have plunged between a range of 30% and 50% relative to 2019 volumes. The company explained reduced demand was due to less traffic on Australian roads as a result of the Government’s isolation measures.

Diesel demand has been relatively stable for Caltex due to the resilience of the mining, agriculture and transportation sectors. According to the company, jet fuel volumes have seen the biggest plunge with demand declining by 80% to 90% as a result of travel restrictions.

Caltex assured shareholders in the update that favourable fuel margins in the retail sector would offset the decline in volume demand. Late last year, Caltex announced plans to launch a $1 billion sharemarket float containing half of its 250 retail sites. In today’s update, the company maintained that IPO transaction documents have been prepared.

How will this impact Caltex’s refineries?

Caltex estimates that the drop in global fuel demand will impact refining conditions for a number of months.  As a result, the company has decided to bring forward and extend the planned shutdown of its Lytton refinery, which will commence in May.

Weak refining margins have resulted in operating cash flow challenges, prompting Caltex to bring forward the closure from July. According to management, having the Lytton refinery offline will help the company conduct a more efficient turnaround and inspection.

Outlook for Caltex

Caltex assured investors that the company is well-positioned to deal with the current period of demand weakness. According to the update, group capital expenditure in 2020 will be lowered to below $250 million from a prior target of $300 million. This comes after Caltex conducted a review of its aviation business and decided to defer capital investments.

Caltex also assured investors of its solid funding position, with the company citing $1.5 billion of undrawn facilities and cash on hand.

Despite a reduced demand in retail demand for fuel, the company remains optimistic that higher margins and diesel demand will offset the fall.  Diesel represented over 50% of Caltex’s Australian fuel volumes in 2019 and remains relatively stable as road transport for essential services continues. The company also noted that refinery operations will recommence when margin conditions have recovered.

At the time of writing, the Caltex share price is trading nearly 6% higher for the day, while the S&P/ASX 200 Index (ASX: XJO) is up almost 4%.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.