U.S. President Donald Trump criticized major oil companies in August, stating that ExxonMobil and Chevron were making “too much money” amid a supply shortage, at a time when profits were soaring due to the U.S. war with Iran.
Corporate earnings released this week show that, against the backdrop of global conflicts, oil giants are still reaping substantial profits from tight fuel supply and high refining profit margins.
Shell, BP, Total Energy, and ExxonMobil have all reported a significant increase in the profit margins of their refined products businesses. This indicator measures the earnings that companies generate after processing crude oil into gasoline, diesel, and aviation fuel.
Chevron did not disclose independent refining profit margin data for direct comparison, but the company stated on Friday that its downstream business profits more than tripled compared to the same period last year, reaching $4.9 billion. The company said this was mainly due to an increase in the profit margin from refined oil sales.
Against the backdrop of increased pressure on global refineries and a tight supply of refined fuel, profits have still risen despite oil companies stating this week that their facilities are operating at near-full capacity to meet demand as much as possible.
Why is the supply so tight?
Key issues include: Ukraine's ongoing drone attacks on Russian refineries, as well as disruptions to the Middle East's energy infrastructure and supply chains related to the war with Iran and attacks by Houthi militants on Saudi Arabia.
These factors, coupled with the closure of refineries in Europe and North America, have occurred despite some new refining capacity being added in other regions.
Dan Jørgensen, the EU Commissioner for Energy and Housing, stated this week that about a quarter of the EU's refineries have closed over the past 20 years, and warned that energy security is facing a "crisis."
In addition to the soaring profit margins of refined oil, higher crude oil prices have also supported the profitability of some major comprehensive oil companies. These companies operate both upstream oil and gas businesses as well as downstream refining operations.
After Russia's full-scale invasion of Ukraine, the profits of these companies have rebounded to levels close to those during the energy crisis in 2022.
The significant increase in profits stands in sharp contrast to consumers facing higher energy prices.
Some analysts suggest that political measures aimed at lowering prices—such as releasing emergency diesel reserves and the agreement between the United States and Russia to supply more diesel to global markets—may have limited impact unless they can substantially increase available supplies, reduce demand, or ease global tensions.
Rafael Portela, head of corporate strategy and analysis at energy consulting firm Wood Mackenzie, told CNBC that despite the ongoing war, crude oil barrels are still being "transported out of the Gulf region," but "the freight premiums are very high," and "the diesel and aviation fuel that these crude oils should have been converted into are largely not appearing on the market."
He added, "The shutdown of Russian refineries and the export ban have taken another large chunk out of the global supply pool."
He listed the conditions that need to be met for this tense situation to end: "An increase in refined oil supply, which depends on the global refining industry obtaining more crude oil supplies: refineries in the Gulf region resuming operations, and Russian exports recovering."
The reconciliation reached in the Strait of Hormuz will quickly reduce profit margins at an emotional level, but with such scarce inventory, the tight physical supply will continue until 2027.
