President Donald Trump criticized Big Oil in August, accusing companies of profiting excessively amid a global fuel supply shortage. Recent corporate earnings reports reveal that oil giants continue to benefit from elevated refining margins, driven by geopolitical tensions and tight fuel supplies.
Major oil companies, including Shell, BP, TotalEnergies, and Exxon, have reported significant increases in their refining margins. These margins reflect the earnings from converting crude oil into products like gasoline, diesel, and jet fuel. Although Chevron does not disclose a specific refining-margin figure, the company announced a more than fourfold increase in downstream earnings, reaching $4.9 billion. This surge is attributed to higher margins on refined-product sales.
The global landscape is marked by several disruptions affecting refinery output. Ukrainian drone strikes on Russian refineries and conflicts in the Middle East, including the Iran war and Houthi attacks on Saudi Arabia, have exacerbated the situation. These issues have compounded the effects of refinery closures in Europe and North America, despite new refining capacity being added in other regions.
In the European Union, approximately a quarter of refineries have shut down over the past two decades. Dan Jørgensen, European Commissioner for Energy and Housing, highlighted this trend, warning of a looming energy security crisis. Meanwhile, higher crude oil prices have bolstered earnings for integrated oil majors, which operate both upstream and downstream businesses.
The current earnings surge contrasts sharply with the challenges faced by consumers, who are dealing with rising energy prices. Some analysts argue that political measures, such as the release of emergency diesel stockpiles, may have limited effects unless they significantly boost supply, reduce demand, or ease global tensions.
Raphael Portela, director for corporate strategy and analytics at energy consultancy Wood Mackenzie, noted that crude oil is still being exported from the Gulf amid the ongoing conflict, but at a high freight cost. He explained that while crude oil is moving, the diesel and jet fuel that would typically be produced from it are not reaching the market. Portela emphasized that Russia's refinery outages and export bans have further strained the global supply pool.
To resolve the current supply crunch, several factors need to align. Increased crude availability for the global refining sector, the restart of Gulf refineries, and the resumption of Russian exports are crucial. Additionally, a settlement in the Hormuz region could quickly impact margins, but with depleted inventories, the physical tightness is expected to persist well into 2027.
