Oil Majors Brace for Profit Pain

The world’s biggest oil companies, supported during crude’s collapse by a buoyant refining business, have lost that buffer as brimming fuel stockpiles swamp demand.

Refineries benefited from oil’s two-year slide that began in mid-2014 because the cost of feedstock fell while fuel demand rose. That led to over-production and huge stockpiles that now cannot be absorbed. For oil majors including Exxon Mobil Corp. and BP, that erodes a valuable source of income that bolstered earnings for much of the past year amid spending cuts, job losses and project cancellations, Bloomberg reported.

The “best days are over” for refining, said Alan Gelder, vice president for refining, chemicals and oil-market research at consulting firm Wood Mackenzie Ltd. “Don’t expect 2015 to be repeated. We’re expecting some ‘average’ years.”

Every $1 decline in the refining margin cuts BP’s adjusted pretax earnings by $500 million a year, according to its website.

Exxon is likely to post a 38% decline in earnings on Oct. 28. Royal Dutch Shell may report profit that is little changed on Nov. 1 following its acquisition of BG Group in February.

Summer in the US and Europe typically boosts refining margins as the driving season increases demand for gasoline. Yet high fuel stockpiles around the world this year pushed third-quarter margins below second-quarter levels in Europe, according to Gelder.

Refining margins are likely to stay “depressed” next year as inventories remain high, according to Ehsan Ul-Haq, senior oil-market analyst at KBC Energy Economics.