London (Business Emerge), July 25: Leading European oil refiners, including TotalEnergies and Neste, have issued warnings about further declines in profit margins due to reduced demand. This signals the end of a brief period of high profits that followed Russia’s invasion of Ukraine.
TotalEnergies, the largest refiner in Europe, experienced a 34% decrease in quarterly operating income from its refining and chemicals division. This drop is attributed to lower margins from processing crude oil into fuels such as diesel, gasoline, and jet fuel. The company’s benchmark European refining margin marker fell by 37% in the second quarter compared to the first quarter of the year.
Pressure on European Refining Sector
The European refining industry, which has long faced competition from international rivals, saw a temporary resurgence following the EU’s ban on Russian oil imports, a significant source of diesel. However, new refineries in Africa and the Middle East, coupled with slower economic growth in Europe, have reintroduced pressure on the sector. TotalEnergies, operating refineries in Europe, the Middle East, and the U.S., anticipates continued pressure on margins into the third quarter.
Global Refining Challenges
BP, Shell, and Exxon Mobil have all indicated that weaker refining margins will affect their second-quarter results. U.S. refiners are also expected to report significant drops in earnings due to a lackluster summer driving season. TotalEnergies noted that global refining margins have significantly decreased since the end of the first quarter of 2024, impacted by low diesel demand in Europe and market normalization after the disruption of Russian supplies. The company reported a 6% drop in second-quarter earnings.
Neste’s Financial Struggles
Finnish refiner Neste reported its first net loss in a decade, citing lower diesel and biodiesel prices and planned maintenance at its Porvoo refinery. The company reduced its annual renewables margin for the second time this year, citing continued market volatility due to global economic and geopolitical uncertainties.
Repsol’s Declining Margins
Spain’s Repsol reported a significant decline in refining margins in the second quarter compared to the previous quarter, driven by lower gasoline prices and higher crude feedstock costs. RBC Capital Markets analysts downgraded Repsol’s rating from outperform to perform, highlighting a deteriorating environment. They noted that while crude oil prices are supported by OPEC+ output cuts, new refinery start-ups and weak product demand are exerting pressure on refining margins. They predict a more muted outlook into 2025, ending an extraordinary multi-year period for Repsol’s downstream earnings.