Oil Majors’ Downstream Outlook Lacks Refinement
http://www.wsj.com/articles/oil-majors-downstream-outlook-lacks-refinement-1439381373
Brent crude is hovering around $50 a barrel. But in other ways for Europe’s oil and gas majors, this is probably as good as it gets.
Refining margins have soared in 2015, reaching their highest levels in more than two and half years, according to data from Finland’s Neste. The initial improvement in margins, after oil prices started to slide last year, wasn’t surprising: product prices fall more slowly than crude and lower oil prices also reduce European refineries’ energy costs.
But the continued rise in profitability was unexpected. Downstream earnings in the second quarter beat forecasts by 6 to 7% for integrated oil and gas companies, like BP, Royal Dutch Shell and Total, notes Jefferies. That helped cushion the blow of low oil prices to upstream businesses, especially as producers cranked up refineries to take advantage.
...Europe’s refineries are generally more geared toward a weaker part of the market, producing middle distillates like diesel or jet fuel. Middle distillate stocks have been rising, according to the International Energy Agency, while the ramp up of big Middle Eastern refineries adds further to diesel output.
There may be new opportunities, argues Saras, particularly for those with complex refineries that can handle the type of heavy, sour crude that should start flowing from Iraq and potentially Iran and is usually priced at a discount to global benchmarks.
Margins seem increasingly unlikely to collapse back into the doldrums.
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Some country is going to start a war if oil remains this cheap for too long.