Big Oil's Refining Boom Built on Scarcity and Destruction

Western oil majors are experiencing a sudden resurgence in refining profits due to the Iran war and ongoing conflicts in Ukraine. The dual shocks have removed approximately 5 million barrels per day of global refining output, leading to a shortage of refined products and granting Big Oil enormous pricing power.

The current boom is built on scarcity and destruction, not sustainable growth. Global refinery runs averaged around 78 million bpd in the second quarter, the lowest level since the COVID-19 pandemic in 2020, according to the International Energy Agency (IEA).

Major oil companies like BP, Exxon Mobil, Chevron, Shell, and TotalEnergies have reported record-breaking margins. BP's refining-indicator margin climbed to $30 per barrel in the second quarter, while Exxon Mobil posted downstream profits of $5.5 billion.

However, experts warn that this boom may be short-lived. Alan Gelder, senior vice president for refining at Wood Mackenzie, expects refining margins and utilization rates to remain strong through the end of the decade, but notes that the current windfall profits are generated by war, damaged infrastructure, and scarcity.

The oil majors understand this reality and are unlikely to reverse their structural decline due to decarbonization, EV adoption, and efficiency gains. For now, Big Oil is enjoying a lucrative intermission, but its future remains uncertain.