HOUSTON: This week, Big Oil executives found minimal potential for a short-term boost in refinery profits after Chevron (CVX.N) opened a new tab, Exxon Mobil (XOM.N) opened a new tab, and Shell (SHEL.L) opened a new tab all announced fourth-quarter earnings were significantly impacted by a decline in fuel production margins. A rise in worldwide refining capacity in 2024 and sluggish demand growth have negatively impacted refining margins. Chevron's stock fell 4 per cent following the announcement of a loss in its refining sector for the first time since 2020, leading the second-largest U.S. oil producer to fall short of Wall Street's profit expectations.
"The trend of margins weakening through 2024 is something you can anticipate will persist and extend into 2025," Chevron CEO Mike Wirth stated during an interview.
"There’s no denying that the fourth quarter was weak," he stated during a post-earnings conference call when asked by an analyst about the decline in refining.
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Big Oil faces refining profit decline challenges.
"I won't describe it as a perfect storm, but it was a period where everything went wrong and was unfavourable," Wirth mentioned that Chevron will concentrate on what it can manage to recover, which includes lighter planned maintenance for refineries in the coming year. Exxon Mobil's stock dropped 2.5 per cent after announcing a 75per cent decrease in adjusted earnings from refining relative to the third quarter. The wider S&P 500 Energy Sector index fell by 2.8 per cent on Friday.
Oil Majors Warn of Refining Profit Decline Amid Global Oversupply and Weak Demand
According to Exxon's Chief Financial Officer Kathryn Mikells, the refining industry continues to face challenges due to extra fuel supply flooding the market following the inauguration of new refineries in various countries globally. She said that is what they are observing as they look forward to 2025. The leading U.S. oil producer exceeded profit forecasts due to increased output from the Permian Basin, the premier oilfield in the U.S., and Guyana, the newest oil hotspot. UK-based Shell stated on Thursday that although it has no intention of leaving the refining sector, it also has no plans for expansion. The firm's earnings for the fourth quarter nearly decreased by 50 per cent compared to last year, totalling $3.66 billion, in part because of lower refining margins. Last year, Shell divested its refining and chemicals facility in Singapore and intends to close another plant located in Wesseling, Germany.
Although increased oil and gas output provided some protection for major oil companies against declining refining profits, standalone refiners faced challenges as fuel demand weakened in the U.S. and China, the top two oil-consuming nations. Phillips 66's (PSX.N) fourth-quarter earnings fell to $8 million from $1.26 billion in the same quarter last year. Valero's VLO.N refining earnings fell 73 per cent in the fourth quarter. Valero CEO Lane Riggs mentioned on Thursday that two U.S. refineries are scheduled to shut down this year, and the restricted increase in capacity after 2025 will aid in sustaining refining margins in the long run.
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Investors were concerned about U.S. President Donald Trump's warnings regarding potential tariffs on crude imports from Canada and Mexico on February 1, as this might increase expenses for U.S. refiners. French oil giant TotalEnergies will announce its fourth-quarter results on February 5, while British oil company BP (BP.L) is set to report on February 11. BP has cautioned that a decline in refining margins and the effects of maintenance and turnaround activities would lead to a profit decrease of up to $300 million compared to the previous quarter.
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