Oil majors head for record refining profits as fuel supply tightens

what happened

Quarterly results from the world's largest oil companies are approaching, and they could come in well above last year's levels. According to Analysis, refining margins have climbed to all-time highs because fuel markets are severely short of supply. Companies that own refineries stand to gain the most.

Italy's Eni has already announced an extraordinary dividend and a larger buyback. Shell expects a refining margin of $42 a barrel, a record that beats the previous peak of $28.04 reached soon after Russia's full-scale invasion of Ukraine in 2022. TotalEnergies expects exceptional results from its downstream business, while BP forecasts an extra gain of up to $2.1 billion.

Wood Mackenzie estimates that drone damage to Russian refineries and lower refining activity in the Middle East have removed about 6 million barrels per day of capacity from operation. Chinese export curbs have tightened the market further, and the loss of Russian diesel exports has hit Europe especially hard.

why it matters

A refining margin is the gap between the cost of crude and the value of the fuels made from it, so it does not equal net profit, which must also account for energy costs, wages and logistics. Final results will depend on how busy refineries stay and how well companies control costs. Morgan Stanley analysts expect a sharp rise in refinery maintenance through the second quarter of next year, which could keep the market tight and margins high. Record shipping costs could eat into part of that profit.

market impact

Diesel and gasoline cracks: record refining margins support earnings of integrated majors such as Shell, BP and Eni

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