Big Oil executives are facing a challenging outlook for refinery profits in the near future, as major players like Chevron, Exxon Mobil, and Shell reported fourth-quarter earnings that were significantly impacted by a downturn in fuel production margins. This trend is attributed to an increase in global refining capacity in 2024, combined with sluggish demand growth, putting pressure on refining margins across the industry.
Chevron experienced a 4% decline in shares after reporting a loss in its refining business for the first time since 2020, missing Wall Street’s profit estimates. Chevron CEO Mike Wirth acknowledged the tough fourth quarter, stating that the refining downturn was a significant factor in the company’s performance. Wirth emphasized the importance of focusing on what the company can control to bounce back, including lighter scheduled maintenance for refineries in the coming year.
Exxon Mobil also saw a 2.5% drop in shares after reporting a 75% plunge in adjusted earnings from refining compared to the third quarter. Chief Financial Officer Kathryn Mikells highlighted the pressure on the refining business from additional fuel supply entering the market due to new refineries opening globally. Despite these challenges, Exxon Mobil beat profit estimates with increased production from the Permian basin and Guyana.
Shell, a UK-based company, reported a nearly halved fourth-quarter earnings, partly due to weaker refining margins. While Shell has no plans to exit the refining business, the company does not intend to expand either. Shell sold its refining and chemicals hub in Singapore last year and plans to shut down another plant in Wesseling, Germany.
Independent refiners like Phillips 66 and Valero also faced significant challenges, with profits plummeting and refining margins dropping in the fourth quarter. Phillips 66’s profit fell drastically, while Valero’s refining profit dropped by 73%.
Looking ahead, limited capacity additions beyond 2025 may help support refining margins in the long term. Valero CEO Lane Riggs mentioned that two U.S. refineries are set to close this year, which could impact the industry. Additionally, concerns over U.S. President Donald Trump’s threats to impose tariffs on crude imports from Canada and Mexico could raise costs for U.S. refiners.
Investors are closely watching for fourth-quarter results from French oil major TotalEnergies on Feb. 5 and British oil producer BP on Feb. 11. BP has already warned of a potential decrease in profit quarter-on-quarter due to a drop in refining margins and the impact of turnaround and maintenance activities.
In conclusion, the refining industry is facing significant challenges in the current market environment, with major players grappling with declining profits and margins. The road ahead may be tough, but strategic decisions and a focus on operational efficiency could help companies weather the storm and emerge stronger in the long run.
(Note: This article has been rewritten based on the original content provided by Sheila Dang and Shariq Khan, with a focus on key points and insights from the original piece.)
