Big oil set to reap profit bonanza from soaring fuel prices

The world’s Big Oil companies are set for another bumper set of quarterly results after the Iran war sent crude prices soaring — and fuels even higher.

Earnings from the five supermajors combined will likely be the third-highest on record, analyst estimates show, as they reaped gains from the biggest supply disruption in history. Crude spiked above $120 a barrel at the end of April, and while prices later pulled back, the refined-product market has remained strong.

“Refining is a material tailwind for second-quarter earnings,” RBC Capital Markets energy analyst Biraj Borkhataria said, adding that margins have grown even stronger since the end of the period.

That’s a boon for large integrated oil companies, with Texan giant ExxonMobil Holdings Corp poised to post its biggest refining profits in almost four years after it invested heavily in expansion along the US Gulf Coast.

For the Europeans, increased volatility has provided huge opportunities at BP Plc, Shell Plc and TotalEnergies SE, which all have extensive trading operations that allow them to thrive during periods of market upheaval.

Analysts expect the five global majors — which also include Chevron Corp — to post $45.8 billion in profit for the period, the most since 2022, when Russia’s invasion of Ukraine drove a surge in energy prices. ExxonMobil and Chevron will likely lead the pack, in part due to accounting revisions on derivative positions that brought large paper losses in the first quarter.

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The Iran war upended global energy markets when it effectively closed the vital Strait of Hormuz at the end of February, shutting vast quantities of crude and products inside the Persian Gulf.

Buyers had to stump up for replacement barrels from elsewhere, particularly the US, creating a raft of opportunities for traders to cash in. The squeeze on petroleum products has also been exacerbated in recent months by waves of Ukrainian attacks on fuel plants in Russia, driving refining margins to records.

“If you look at oil prices plus refining margins, then we are close to the highs at the time the Russia-Ukraine war started,” RBC’s Borkhataria said.

That market reality is reflected in Big Oil’s share performance. TotalEnergies has jumped more than 30% this year, while BP and Shell have gained more than 20%. The two US majors are up about 25%.

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Gasoline, diesel

While crude markets retreated in May and June as Persian Gulf producers managed to ship more barrels through Hormuz and Chinese demand languished, prices for gasoline, diesel and jet fuel remained elevated. That trend continues, threatening to stoke inflationary pressures around the world.

There will be “structurally higher prices for jet fuel, diesel and other distillates, at least for a couple of years,” James West, a New York-based analyst at Melius Research, said in an interview.

That’s likely to contribute to the political backlash against Big Oil as President Donald Trump prepares for midterm elections in November. Gasoline prices in the US are once again above $4 a gallon, and Trump has ordered the Justice Department to look into pump pricing.

As far as crude markets are concerned, much rests on the trajectory of the Middle East war, with prices up again this month as attacks escalated.

West sees crude averaging $80 to $90 a barrel for the rest of the year, though Brent currently exceeds that range. The global benchmark averaged $96.79 a barrel in the second quarter.

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