BP’s refining business is experiencing a decrease in margins due to the stalling global oil demand, impacting profits for the third quarter of the year. The oil major anticipates a reduction of $400 million (£306 million) to $600 million (£459 million) in its third-quarter profit as a result of the slump in refining margins. In a trading statement released on Thursday, BP also foresees weak oil trading for the period ending in September.
Following Shell’s report of a decline in margins, BP attributes the drop to a recent downturn in global demand across consumer and industrial sectors within their refining businesses. Factors such as economic slowdowns in major economies like China and an increase in electric car sales have contributed to this decline. Refiners, who previously enjoyed significant profits driven by supply shortages linked to Russia’s invasion of Ukraine, are now facing challenges.
Exxon Mobil, a US rival of BP and Shell, also warned of lower oil prices and refining margins impacting profits for the most recent quarter. Furthermore, oil prices witnessed a substantial decrease this year, with Brent crude futures prices plummeting by over one-sixth during the third quarter. While recent price hikes have been influenced by renewed military conflicts between Israel and Iran, concerns over supply from the Middle East have emerged.
BP indicated that its oil production and operations business would also be affected by lower prices, with an estimated impact of $100 million (£76 million) to $300 million (£229 million). This is attributed to the impact of price lags on BP’s production in the Gulf of Mexico and the United Arab Emirates. Despite these challenges, the company raised its upstream production guidance for the third quarter, expecting it to be relatively stable compared to the previous three months.
Forecasts suggest a rise in third-quarter net debt, partly due to weaker margins and approximately $1 billion worth of divestment proceeds set for the fourth quarter. The evolving landscape of the oil industry, impacted by various global factors and market dynamics, continues to pose challenges for major oil companies like BP and Shell.