BP’s shares dipped by over 3% on Tuesday after the company warned that weak refining margins and lower oil trading results will dent its second-quarter profit by up to $700 million.
The warning, which led several analysts to lower their earnings estimates, will weigh on CEO Murray Auchincloss’ efforts to rebuild investor confidence in BP’s strategy. U.S. oil major Exxon Mobil had also signaled that lower refining margins and natural gas prices would reduce its second-quarter profit.
BP said refining margins will be significantly lower in the quarter due to weak diesel prices and narrower North American heavy crude oil differentials that impact its large refinery in Whiting, Indiana. As a result, earnings in the second quarter will be between $500 million and $700 million lower than for the previous three months.
The company also expects to record $1 billion to $2 billion in charges in the second quarter, mainly tied to its review of the Gelsenkirchen refinery in Germany. BP’s upstream production in the second quarter is expected to be broadly flat compared with the prior three months.
Citi analysts lowered their Q2 earnings per share estimate by 9%, while Jefferies analysts expected the update to result in a 20% earnings downgrade. Investors expect BP’s second-quarter underlying replacement cost profit to come in at $3.13 billion.
The news comes as BP is trying to boost returns and cut costs by $2 billion, with the company having imposed a hiring freeze and paused renewables projects as part of Auchincloss’ plan. Analysts noted that the latest update does not help in demonstrating the company’s competence in the day-to-day running of the business.