The world of Big Oil faces a tough challenge as refinery profits take a hit in the fourth quarter, leaving executives wary of a quick turnaround. Chevron, Exxon Mobil, and Shell all felt the blow of shrinking margins in fuel production, with Chevron even reporting a loss in its refining sector for the first time since 2020.
- Refinery Profit Woes: The gloomy outlook stems from an increase in global refining capacity in 2024 paired with sluggish demand growth. This unfavorable combination has put pressure on refining margins, forecasting a continued turbulent road into 2025.
- Executive Insights: Chevron CEO Mike Wirth acknowledged the weak fourth quarter, emphasizing the trend of softening margins. Wirth remains focused on controlling what Chevron can to bounce back, such as implementing lighter maintenance schedules for refineries in the coming year.
- Market Impact: Exxon Mobil’s shares fell 2.5% following a substantial 75% decline in adjusted earnings from refining compared to the previous quarter. The broader S&P 500 Energy Sector index also suffered a 2.8% dip on the back of these disappointing results.
While Big Oil giants like Exxon Mobil managed to surpass profit estimates due to increased production in key regions like the Permian basin and Guyana, standout performers were the exception in a sea of downturns.
Independent Refiners Suffer: The struggles were not limited to the major players, as independent refiners felt the brunt of the impact. Phillips 66 saw profits plunge, while Valero experienced a significant drop in refining profit in the fourth quarter.
Looking Ahead: With two U.S. refineries slated for closure this year, and limited capacity additions expected beyond 2025, there remains hope for a revival in refining margins in the long haul. Valero CEO Lane Riggs expressed optimism that these limited additions could provide support down the line.
As the industry braces itself for more challenges, upcoming reports from TotalEnergies and BP will shed further light on the state of affairs. BP has already sounded a warning, anticipating a decrease in profits due to declining refining margins and operational activities.
With uncertainty looming large and challenges persisting in the refinery sector, the coming months will be crucial for Big Oil to navigate through troubled waters and emerge stronger.
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