Warning after warning! Total (TTE.US)'s Q3 downstream performance outlook is sluggish, and is the global refining supercycle coming to an end?

The Zhitong Finance App learned that French oil giant Total (TTE.US) said on Tuesday that in the face of falling global oil prices, the company's downstream performance in the third quarter is expected to drop sharply due to falling refining margins in Europe and other regions.

In the third quarter of this year, Total's European refining profit margin was 15.4 US dollars/ton, which is significantly lower than the previous quarter's 44.9 US dollars/ton. The company will announce its current quarter results on October 31.

Brazil's Mero 2 project partially offsets the impact of the unplanned shutdown of Australia's Ichthys liquefied natural gas (LNG) project, and oil and gas production is expected to reach 2.4 MBoe/D throughout the quarter.

The company said the consolidated liquefied natural gas performance is expected to exceed $1 billion, while the performance of its integrated power division is expected to be broadly consistent with the second quarter.

Warning one after another

In fact, in addition to Total's latest warning, Shell (SHEL.US), ExxonMobil (XOM.US), and British Petroleum (BP.US) all indicated earlier that refining profit margins would decline in the third quarter.

The companies' warnings marked the beginning of a slump in an industry where returns soared after the pandemic, and highlighted the extent of the current slowdown in global demand.

This is a further indication of weak consumer and industrial demand due to slowing economic growth and rising electric vehicle adoption. Additionally, new refineries in Africa, the Middle East, and Asia are putting downward pressure on refining margins.

Refineries such as Total and trading companies such as Glencore achieved huge profits in 2022 and 2023, as they took advantage of supply shortages caused by the Russian-Ukrainian conflict, the Houthis disrupted Red Sea navigation, and a sharp recovery in demand after the COVID-19 pandemic.

Analysts said that in the face of weak demand, oversupply in the global diesel market is one of the main reasons for weak profit margins.

The International Energy Agency predicts that demand for diesel and diesel will average 28.3 million barrels per day this year, down 0.9% from 2023, while demand for gasoline, aviation fuel, liquefied petroleum gas, and fuel oil increased during the same period.

Energy Aspects analyst Raul Caldaria said that refining profits are expected to remain low for the rest of this year, and the increase in European winter diesel demand will bring some room for improvement.

Furthermore, the commissioning of a large number of new refineries has also increased pressure on profits.

Commodity Context analyst Rory Johnston said, “It looks like the refining supercycle we have experienced in the past few years may now be coming to an end, and the supply of newly completed refineries has finally caught up with slowing fuel demand.”

David Wech, chief economist at Vortexa, said: “Currently, global refining capacity has clearly exceeded demand levels, and new production capacity will only make the situation worse.”

Bank of America analysts said in a September 13 report that they expect global refining profit margins to continue to decline as new refining capacity increases by 1.5 million b/d year over year.