TotalEnergies and Neste, two major European oil refiners, have cautioned about the potential for decreased profit margins due to declining demand. This comes after a period of strong profits following Russia's invasion of Ukraine.
TotalEnergies, the largest European refiner, reported a 34%
decrease in operating income for its refining and chemicals business, largely
due to lower profit margins from processing crude oil into fuels like diesel,
gasoline, and jet fuel. The benchmark European refining margin marker also
dropped by 37% in the second quarter.
The European Union's ban on oil imports from Russia, a major
source of diesel, had briefly boosted European refining. However, the start-up
of new refineries in Africa and the Middle East, along with slower economic
activity in Europe, has put renewed pressure on the sector.
TotalEnergies expects this pressure on margins to persist
into the third quarter, as global refining margins have been significantly
impacted by low diesel demand in Europe and market normalization following the
disruption in Russian supply.
Refining margins are returning to their pre-war levels,
according to TotalEnergies CEO Patrick Pouyanne.
"Margins are back to where they were before the last
two remarkable years ... We have come back to reality," Pouyanne told
analysts.
BP, Shell, and Exxon Mobil recently cautioned that
diminished refining margins would adversely affect their second-quarter
financial performance, which will be disclosed next week.
Furthermore, U.S. oil refiners are anticipated to report
significantly reduced earnings for the second quarter due to an underwhelming
summer driving season.
UNCERTAINTY
Neste, a Finnish refiner, announced its first net loss in
ten years on Thursday. The company attributed this loss to lower diesel and
biodiesel prices, as well as planned maintenance at its Porvoo refinery.
Additionally, Neste revised its annual renewables margin downward for the
second time this year.
"The uncertainty in the global economic outlook and
geopolitical situation continues to create market volatility ... the refining
market continues to be impacted by geopolitical tensions," Neste said in
its results.
On Wednesday, Repsol, a Spanish energy company, reported a
significant decrease in refining margins during the second quarter compared to
the preceding three months. This decline was primarily attributed to reduced
gasoline prices and increased costs associated with crude feedstock.
In response to these results, analysts at RBC Capital
Markets downgraded Repsol’s rating from “outperform” to “perform,” citing a
challenging market environment. While crude oil prices have been supported by
production cuts implemented by the OPEC+ group of producers, the analysts
highlighted that new refinery expansions and subdued demand for products have
exerted pressure on refining margins.
"We believe the outlook is likely to remain more muted
into 2025, which effectively ends an extraordinary multi-year period for
Repsol's downstream earnings," they said in a note.