BP Cautions That Weak Refining Margins Will Impact Q3 Earnings

Weak refining margins are projected to impact BP’s third-quarter results by up to $600 million, highlighting the effects of declining fuel demand and a decrease in oil trading profits for the energy company.

Global oil refiners are facing challenges due to a lackluster demand environment, largely influenced by the sluggish economic conditions in China, the world’s leading oil importer, and the ongoing rise of electric vehicles. During the third quarter, oil prices dropped by 17%.

Additionally, the commissioning of new refineries in regions such as Africa, the Middle East, and Asia has further pressured the financial returns of BP and other companies in the sector.

BP is also dealing with discontent from investors regarding its strategic direction, despite efforts from CEO Murray Auchincloss to improve performance since he took over in January.

So far this year, BP’s shares have decreased by 13%, contrasting with the stock prices of competitors like Shell and Exxon Mobil, which have seen gains. Following a recent trading update, BP’s shares experienced a slight decline during mid-morning trading in London.

In its statement, BP indicated that net debt at the end of the quarter would rise due to lower refining margins and the rescheduling of about $1 billion in divestment proceeds to the fourth quarter.

The company also anticipates that realizations from its oil production and operations segment may negatively affect returns by up to $300 million. Furthermore, increased exploration write-offs could impact earnings by an additional $200 million to $300 million.

Analysts at Jefferies predict that these factors will lead to approximately a 10% downgrade in consensus earnings estimates for BP in the third quarter, from an initial projection of $2.3 billion. BP is scheduled to report its earnings on October 29.

In the previous quarter, BP reported an underlying replacement cost profit of $2.756 billion, its benchmark for net income.