Refiner margins unable to fully offset low upstream earnings for IOCs

According to the EIA, 1Q15 financial results for globally integrated oil companies, who focus on both the exploration and production of crude oil (upstream) and the refining of crude oil into petroleum products (downstream), show that total earnings were US$22 billion (54%) lower than in 1Q14. Lower crude oil prices contributed to a decline in profits in the upstream sector of US$28 billion (80%) compared to 1Q14. Profits in the downstream sector, however, were the largest for any quarter since 3Q12, almost US$6 billion (95%) higher than in 1Q14, which offset some of the decline from the upstream segment.

Crack spreads represent year-over-year increases

Crack spreads refer to the differences between wholesale petroleum product prices and crude oil prices and they can serve as an indicator of refining profits. Crack spreads for gasoline and heating oil – based on futures prices for North Sea Brent crude oil and gasoline and heating oil in New York Harbour – averaged ¢28/gal. and ¢49/gal., respectively, in the 1Q15. These crack spreads represent year-over-year increases of ¢7/gal. for gasoline and ¢4/gal. for heating oil.

An increase in the margin from refining crude oil

First quarter earnings statements from 11 global companies show that the high crack spreads during this time contributed to higher profits in the downstream segment. Even though absolute prices for both crude oil and petroleum products declined in 1Q15 compared to 1Q14, North Sea Brent crude oil prices fell more than wholesale gasoline and heating oil prices, resulting in an increase in the margin from refining crude oil.

The combination of lower upstream earnings and higher downstream earnings led to downstream earnings accounting for 63% of combined earnings in the first quarter, compared to a 15% average downstream share from 2011 through 2014.


Edited from press release by Cecilia Rehn

Published on 17/06/2015

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