European oil refiners, including TotalEnergies and Neste, have reported significant declines in profit margins, signaling the end of a brief period of exceptional profits that followed Russia’s invasion of Ukraine. TotalEnergies, the largest refiner in Europe, experienced a 34% quarterly drop in operating income for its refining and chemicals division, attributed to lower profit margins from processing crude oil into fuels like diesel, gasoline, and jet fuel.
The benchmark European refining margin marker fell by 37% in the second quarter compared to the first quarter of the year. While the refining sector had seen a boost after the EU banned oil imports from Russia, the recent start-up of new refineries in Africa and the Middle East, coupled with a slowdown in economic activity in Europe, has renewed pressure on the industry.
TotalEnergies anticipates that margin pressures will persist into the third quarter, citing low diesel demand in Europe and market normalization following the disruption of Russian supply. CEO Patrick Pouyanne noted that refining margins have reverted to pre-war levels, indicating a return to reality after two years of remarkable profits.
Other major players like BP, Shell, and Exxon Mobil have also warned of weaker refining margins impacting their second-quarter results. Finnish refiner Neste reported its first net loss in a decade due to lower diesel and biodiesel prices, along with maintenance at its Porvoo refinery, prompting a second cut to its annual renewables margin.
Spain’s Repsol also reported a sharp decline in refining margins due to lower gasoline prices and increased crude feedstock costs. Following this trend, analysts at RBC Capital Markets downgraded Repsol’s rating, highlighting a deteriorating environment for refining margins.
Despite ongoing support for crude oil prices from OPEC+ production cuts, new refinery ramp-ups and sluggish product demand are expected to keep refining margins under pressure, leading to a muted outlook into 2025.