This week, major oil companies like Chevron, Exxon Mobil, and Shell revealed a sobering outlook for refinery profits, which have recently taken a hit. These industry giants reported a downturn in their fourth-quarter earnings, largely because the profit margins on fuel production have not been favorable.
The combination of increased global refining capacity expected in 2024 and sluggish demand growth is squeezing refining margins. Chevron’s stock saw a 4% drop after it faced its first loss in the refining sector since 2020, missing Wall Street’s expected profits.
Chevron CEO Mike Wirth noted in an interview that the declining trend in margins is likely to persist through 2025. “It was undeniably a weak fourth quarter,” he acknowledged in a conference call, commenting on the overall downturn for the industry. Wirth stopped short of labeling the situation a “perfect storm,” but he did admit, “everything moved in one direction, and it wasn’t favorable.”
Looking ahead, Wirth emphasized Chevron’s commitment to focusing on areas within their control, such as reducing scheduled maintenance for refineries in the coming year.
Exxon Mobil also experienced a setback, with its shares slipping 2.5% as its adjusted earnings from refining took a 75% nosedive compared to the previous quarter. This was reflected in a 2.8% drop in the S&P 500 Energy Sector index on Friday.
According to Exxon’s CFO, Kathryn Mikells, the refining sector continues to face pressure due to new fuel supply flooding the market from newly opened refineries worldwide. “This is something we’re closely monitoring as we move towards 2025,” she said.
Despite the challenges, Exxon surpassed profit expectations with increased production outputs from robust regions like the Permian Basin and the emerging oil hub, Guyana.
UK-based Shell hasn’t signaled any plans to exit its refining operations, although expansion isn’t on the cards either. The company saw its fourth-quarter earnings almost halve from the previous year, landing at $3.66 billion, partly because of weaker refining margins. Following the sale of its refining and chemicals hub in Singapore last year, Shell plans to close another plant in Wesseling, Germany.
Independent refiners bore the brunt as well. While major players could soften the blow through their oil and gas production, refineries solely focused on refining suffered due to waning fuel demand in key markets like the U.S. and China. For example, Phillips 66’s profits in the fourth quarter plummeted to $8 million from the $1.26 billion they posted a year prior, and Valero’s refining profit took a 73% dive in the same period.
Within the independent refinery space, Valero projects the closure of two U.S. refineries this year, with limited expansion beyond 2025 likely aiding refining margins in the long run, according to CEO Lane Riggs.
Investors are also uneasy about potential cost increases for U.S. refiners following threats from President Donald Trump to impose tariffs on crude imports from Canada and Mexico starting February 1.
Looking ahead, French oil major TotalEnergies is scheduled to release its fourth-quarter earnings on February 5, while British producer BP will report on February 11. BP has cautioned investors about an expected drop in refining margins, coupled with maintenance activities, potentially leading to a $300 million quarterly profit decline.
This financial landscape presents a challenging environment for the oil industry, as reported from Houston by Sheila Dang and edited by Richard Valdmanis, Simon Webb, and Marguerita Choy.
