TotalEnergies Warns Low Refining Margins Will Hit Q3 Earnings

TotalEnergies has become the latest supermajor to flag weak refining margins as the key drivers of expected lower third-quarter results.

The downstream earnings of TotalEnergies are expected “to sharply decrease given much lower refining margins” in Europe and in the rest of the world, the French oil and gas giant said in a preview of its Q3 earnings to be published on October 31.

The European Refining Margin Marker (ERM) – the market indicator for European refining representative of the company’s European refining system – plunged by 65% to $15.4 per ton in the third quarter, compared to $44.9 per ton for the second quarter. For reference, this margin averaged $100.6/t for the third quarter of last year, according to TotalEnergies’s summary of the main indicators.

In its earnings preview, the company also said that its exploration and production results are expected to reflect the decrease in liquid prices compensated by an increase in gas prices. Oil and gas production is expected to be at 2.4 million barrels of oil equivalent (boe/d), as the ramp-up of the Mero 2 project in Brazil partially offsets unplanned shutdowns at Ichthys LNG for maintenance and security-related disruptions in Libya.

TotalEnergies is the latest supermajor to warn of lower Q3 earnings, due to falling refining margins and a decline in oil prices.

Last week, BP said that weak refining margins and weaker oil trading results are expected to dent the firm’s third-quarter profit.

The BP announcement followed the one from Shell earlier last week, in which the other UK-based supermajor said it expects lower refining margins and a loss in its chemicals business to weigh on its third-quarter earnings. These could be offset or partly offset by higher LNG production volumes, Shell said in its third-quarter update note.

Falling refining margins have already hit the second-quarter earnings of the supermajors, and further declines in Q3 are expected to continue to weigh on the profits.

The refining industry is witnessing the end of the supercycle of huge profits and record margins that began with the post-pandemic surge in demand and the war- and sanctions-related supply disruptions.

By Tsvetana Paraskova for Oilprice.com