War Profits Fuel Oil Refining Boom, but Long-Term Prospects Remain Uncertain
Oil refining profits are soaring due to recent conflicts in Iran and Ukraine, benefiting Western oil majors. Despite long-term structural changes in oil consumption, Big Oil's earnings have seen a significant boost.
The sector has undergone a transformation in the past two decades, with Western oil giants retreating from refining due to high operating costs, volatile margins, and growing competition from state-backed refiners.
Shell has led the retreat, reducing its interests in refineries from 40 to just seven. However, the current conflicts have led to a spike in refining margins for gasoline, diesel, and jet fuel, reaching record highs.
The loss of Middle Eastern crude and Ukraine's attacks on Russian energy infrastructure have removed around 5 million barrels per day of global refining output in the second quarter, with global refinery runs averaging around 78 million bpd, the lowest level since 2020.
US refineries operated at 97 percent capacity in July, while BP's refining-indicator margin climbed to $30 per barrel in the second quarter. Exxon and Chevron also reported strong downstream profits due to record diesel production.