A BP gas station in New York, on Nov. 24, 2021.ANDREW KELLY/Reuters
Weak refining margins due to a slowdown in global demand for fuel and lower oil trading results will dent BP’s BP-N third-quarter profit by up to $600-million, the British oil major said on Friday.
Global oil refiners are facing a drop in profitability to multi-year lows, a sharp reversal for an industry that had enjoyed surging returns post-pandemic and underlining the extent of the current demand slowdown.
BP’s second-quarter underlying replacement cost profit, the company’s definition of net income, was $2.756-billion.
Rival Shell SHEL-N on Monday also warned of slump in refining profit margins and weak oil product trading in the third quarter, while U.S. oil major Exxon Mobil XOM-N said last week that a slump in oil prices was set to hit its third-quarter profit.
Oil prices fell by 17 per cent in the third quarter, the largest quarterly decline in a year, on worries about the global oil demand outlook.
BP’s earnings snapshot comes as CEO Murray Auchincloss scales back the firm’s energy transition strategy to regain investor confidence.
Auchincloss took the helm in January but has struggled to stem the drop in BP’s share price, which has underperformed its rivals so far this year as investors question the company’s ability to generate profits under its current strategy.
Year-to-date, BP’s stock has fallen around 12 per cent, while shares of Shell and Exxon have gained nearly 1 per cent and 23 per cent, respectively.
BP stock slipped 0.4 per cent in morning trade to 409.15 pence.
“We remain unconvinced that the incumbent board have the courage to change direction and revitalise the strategy,” said Panmure Liberum analyst Ashley Kelty.
The company added that its net debt at the end of the quarter is expected to be higher, driven primarily by the impact of weaker realized refining margins.
BP, which is set to post its quarterly results on Oct. 29, said its upstream production in the third-quarter is expected to be broadly unchanged from the prior three months.
In the second-quarter, BP’s total hydrocarbons production stood at 899,000 barrels of oil equivalent per day (mboe/d).
The London-listed company said in the oil production and operations unit, the third-quarter result will be impacted by $100-million to $300-million.