European refiners' golden era draws to end as demand sags
7/25/2024 2:00:00 PM
European oil refiners TotalEnergies and Neste warned of further weakness in profit margins amid sagging demand, signaling an end to a brief era of stellar profits that followed Russia's invasion of Ukraine. TotalEnergies, the largest European refiner, saw a 34% quarterly drop in operating income of its refining and chemicals business due to lower profit margins from processing crude oil into fuels such as diesel, gasoline and jet fuel.
Its benchmark European refining margin marker dropped by 37% in the second quarter from the first three months of the year. European refining, long under pressure from overseas rivals, was given a lease of life in the wake of the Ukraine war after the European Union banned oil imports from Russia, which was a major source of diesel.
The start-up of new refineries in Africa and the Middle East in recent months, combined with slower economic activity in Europe, has however renewed pressure on the sector.
The French company, which operates refineries in Europe, the Middle East and the United States, said it expects the pressure on margins to continue into the third quarter. "Global refining margins, which have sharply decreased since the end of the first quarter 2024, remain impacted by low diesel demand in Europe, as well as by the market normalization following the disruption in Russian supply," TotalEnergies said after reporting a 6% drop in second-quarter earnings.
Refining margins are normalizing to their pre-war levels, TotalEnergies CEO Patrick Pouyanne said.
"Margins are back to where they were before the last two remarkable years...We have come back to reality," Pouyanne told analysts. bp, Shell and ExxonMobil warned in recent weeks that weaker refining margins would impact second quarter results, which they will report next week.
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