OMV Group Business Year

In 2023, OMV achieved the second-highest clean CCS Operating Result of EUR 6 bn in its history. Furthermore, cash flow from operating activities excluding net working capital effects remained significant, amounting to EUR 4.6 bn, and the organic free cash flow totaled EUR 2.3 bn. The leverage ratio was at the same level of 8% as in the previous year. This financial strength is an excellent basis for OMV’s further strategic development into a leader in sustainable fuels, chemicals and materials while committing to delivering attractive shareholder returns.

Business environment

Macroeconomy

Global GDP growth in 2023 is estimated to decelerate further, making it one of the weakest years ever excluding those with major recessions (2001–2002, 2009, 2020) as economies continue to recover slowly from the blows of the pandemic, Russia’s invasion of Ukraine, and the cost of living crisis. Nevertheless, despite the disruption in energy and food markets caused by the war, and the unprecedented tightening of global monetary conditions to combat the highest inflation for decades, the global economy slowed but didn’t stall. The latest IMF projection expects 2023 annual GDP growth to be just above 3% with a slowing trend across the year. This estimate is significantly below 3.5% and 3.7%, which are the averages from 2022 and 2010–2019 respectively.*IMF World Economic Outlook, January 2024

The economic slowdown was driven by multiple factors. Excess savings resulting from the pandemic-era fiscal stimulus have been in decline in developed economies, especially in the United States, implying fewer resources for households. International tourist arrivals are approaching prepandemic levels in most regions. As recovery in tourism progresses, the boost to growth is waning. Manufacturing has also been under pressure amid declines in industrial production and investment. Additionally, as a post-pandemic trend, consumerism has been shifting back to services, while tighter credit conditions and the cost of living crisis also weighed on manufacturing.

Growth also remained uneven, with growing global divergences. The slowdown is more visible in advanced economies, while emerging economies were in general more resilient. The United States was an upside outlier in the developed cluster, as resilient consumption and investment kept the economy in better shape. On the other hand, China was a negative surprise among developing nations amid growing headwinds from its real estate crisis and weakening confidence.

As the services sector recovered and then surpassed prepandemic levels, the strong demand from labor-intensive services also translated into tighter labor markets, and higher and more persistent services inflation.

There were also regional divergences in employment. Employment and labor participation rates are estimated to exceed prepandemic trends in advanced economies but to remain significantly below them in emerging markets due to more severe output losses and much weaker social protection.

The cost of living crisis remained a major economic issue for policymakers to solve despite global annual inflation falling from 8.7% in 2022 – the highest since 1996 – to 6.9% in 2023. The spike in inflation was driven by surging energy prices between the second half of 2021 and early 2023, which had spillover effects on prices throughout value chains, while the Russia-Ukraine war caused tightness on the food markets as well. Disinflation can also be associated with falling oil and gas prices, while food prices have been showing signs of moderation. Previously, supply chains were also under pressure due to temporary yet tectonic shifts in consumption patterns; however, normalization in this area contributed to cooling inflation.

Core inflation*Inflation excluding food and energy also moderated in 2023; however, it was stickier compared to headline figures. Demand eased as COVID–19-related fiscal support was winding down; however, the effect of past price shocks was built into short-term inflation expectations, keeping core inflation more rigid. In the United States, a tight labor market contributed to elevated core inflation.

In response to elevated inflation rates, central banks started aggressive monetary tightening. The ECB, FED, and the Bank of England increased policy interest rates by 100–200 basis points in 2023. In the current cycle, the US and UK policy interest rates increased by more than 500 basis points compared to earlier lows, while in the Eurozone the increase surpassed 400 basis points by the end of 2023. The only exception was the Bank of Japan, which has kept the reference interest rate at –‍0.1% since 2016. Countries are also at different points in their hiking cycles. Advanced economies, excluding Japan, are at or near the peak, while some emerging market economies have already started easing.

Higher interest rates started to impact the economy through monetary transmission mechanisms. Lending surveys in major economies show that access to credit became considerably more difficult. Tighter credit conditions weighed on housing markets, investment, and activity, more so in countries with a higher share of variable-rate mortgages or where households are less willing, or able, to dip into their savings. Firm bankruptcies increased in the US and the Euro Area, although from historically low levels.

Oil and gas

The European Union enacted energy-related sanctions against Russia in response to its invasion of Ukraine. As a result, seaborne crude oil and certain refined petroleum products could not be imported from Russia from December 5, 2022, and February 5, 2023, respectively. A temporary exception is foreseen for imports of crude oil by pipeline into those EU member states that, due to their geographical situation, suffer from a specific dependence on Russian supplies and have no viable alternative options. Moreover, Bulgaria and Croatia specifically will benefit from temporary derogations concerning the import of Russian seaborne crude oil and vacuum gas oil, respectively.

There is also a prohibition for EU vessels to transport Russian crude oil and petroleum products to third countries. Sanctions have also prohibited the related provision of technical assistance, brokering services, or financing or financial assistance. This ban doesn’t apply if the crude oil or petroleum products are purchased at or below the oil price cap.

As a result, the European share in Russian seaborne exports fell to approximately 10%, from 50–60%, while China and India became the biggest importers of Russian crude.

The Brent price fell from USD 101/bbl in 2022 to USD 83/bbl in 2023. The crude oil price has been oscillating in the USD 75–100/bbl range since August 2022, the decline in the annual average being the result of the price spike in the first half of 2022 due to the Russia-Ukraine war. 2023 started with an optimistic economic sentiment driven by Chinese recovery as the last wave of COVID–19 restrictions was lifted, which also boosted oil demand. According to the IEA, year-on-year oil demand growth was 2.4 mbbl/d in 2023, 1.8 mbbl/d of which came from China. In the second half of the year, the economic outlook started darkening, affected by the negative economic impacts of rising interest rates and falling real disposable income due to high inflation worldwide. As a result, OPEC+ had to further scale back production in order to keep markets balanced.

Crude price (Brent) – monthly average¹

In USD/bbl

In 2022, natural gas was at the epicenter of attention on the energy markets with record high outright prices and volatility. Even at the end of 2022, there were days when day-ahead TTF prices were nearing EUR 150/MWh, affected by stock depletion concerns during winter, as Russian imports arrived to Europe only through Turkstream and in small amounts via Ukraine. However, EU–27 inventories ended the 2022–2023 heating season at 60%, which is significantly above the seasonal average, making restocking for the 2023–2024 heating season a lot more manageable. On the one hand, it was the result of lower than expected demand as the warm winter reduced the need for heating and saving measures were also introduced, while reduced Russian supply was partially offset by LNG, mainly coming from the US. In the later part of 2023, demand remained lower than in previous years; however, it was driven by weakening macroeconomic fundamentals, weighing on the industrial use of natural gas. In 2023, EU–27 natural gas demand fell 10% compared to 2022 and 19% compared to 2019 and 2021.

Due to softer fundamentals, prices retreated significantly from historic highs and spent most of the year in the EUR 30–50/MWh range. However, these values were still 50–100% higher compared to historical terms as Europe still needed to set prices higher compared to Asian buyers in order to attract import volumes.

Refining and petrochemicals

Refinery margins remained on a healthy level in 2023 as global refinery runs were unable to match demand growth, keeping crack spreads at an elevated level. However, there were different dynamics throughout the year, predominantly driven by diesel crack spread. The first part of the year showed a falling trend from an elevated starting position as rising supplies from the Middle East exerted pressure on diesel cracks. However, in the second half of the year, OPEC+ intensified crude cuts, resulting in lower availability of medium sour grades, which has high middle distillate yields. In addition, unplanned refinery downtime lifted crack spreads in general. Naphtha crack spreads were underperforming for most of 2023, as weak polyolefin margins weighed on demand from steam crackers.

High inflation and interest rates decimated consumer disposable income in 2023, which translated into lower demand growth for petrochemical products all over the world. Economic difficulties in China were especially concerning as the country accounts for one-third of global polyethylene demand, which is by far the largest ethylene derivative. In the meantime, the butadiene market was under pressure due to lower demand from the construction and automotive segments.