European refiners' golden era draws to end as demand sags
Total posts 34% drop in Q2 refining, chemicals operating income
Finland's Neste reports first net loss in a decade
TotalEnergies sees weak Q3 diesel demand in Europe
Analysts see muted outlook for refining margins into 2025
Adds TotalEnergies CEO comment
By Ron Bousso and America Hernandez
LONDON, July 25 (Reuters) -European oil refiners TotalEnergies TTEF.PA and Neste NESTE.HE warned on Thursday of further weakness in profit margins amid sagging demand, signalling an end to a brief era of stellar profits that followed Russia's invasion of Ukraine.
TotalEnergies, the largest European refiner, saw a 34% quarterly drop in operating income of its refining and chemicals business due to lower profit margins from processing crude oil into fuels such as diesel, gasoline and jet fuel.
Its benchmark European refining margin marker dropped by 37% in the second quarter from the first three months of the year.
European refining, long under pressure from overseas rivals, was given a lease of life in the wake of the Ukraine war after the European Union banned oil imports from Russia, which was a major source of diesel.
The start-up of new refineries in Africa and the Middle East in recent months, combined with slower economic activity in Europe, has however renewed pressure on the sector.
The French company, which operates refineries in Europe, the Middle East and the United States, said it expects the pressure on margins to continue into the third quarter.
"Global refining margins, which have sharply decreased since the end of the first quarter 2024, remain impacted by low diesel demand in Europe, as well as by the market normalisation following the disruption in Russian supply," TotalEnergies said after reporting a 6% drop in second-quarter earnings.
Refining margins are normalizing to their pre-war levels, TotalEnergies CEO Patrick Pouyanne said.
"Margins are back to where they were before the last two remarkable years ... We have come back to reality," Pouyanne told analysts.
BP BP.L, Shell SHEL.L and Exxon Mobil XOM.N warned in recent weeks that weaker refining margins would impact second quarter results, which they will report next week.
U.S. oil refiners are also expected to report sharply lower second-quarter earnings after a listless summer driving season.
UNCERTAINTY
Finnish refiner Neste reported on Thursday its first net loss in a decade, impacted by lower diesel and biodiesel prices, as well as planned maintenance at its Porvoo refinery. The company also cut its annual renewables margin for a second time this year.
"The uncertainty in the global economic outlook and geopolitical situation continues to create market volatility ... the refining market continues to be impacted by geopolitical tensions," Neste said in its results.
On Wednesday, Spain's Repsol REP.MC reported a sharp drop in refining margins in the second quarter from the previous three months, driven by lower gasoline prices and higher crude feedstock costs.
Following the results, RBC Capital Markets analysts cut Repsol's rating to perform from outperform citing a deteriorating environment.
While crude oil prices remain supported by output cuts by the OPEC+ group of producers, "new refinery ramp-ups and sluggish demand for products have put pressure on refining margins", the RBC analysts said.
"We believe the outlook is likely to remain more muted into 2025, which effectively ends an extraordinary multi-year period for Repsol's downstream earnings," they said in a note.
The end of a golden era https://reut.rs/3Sjh5G8
Reporting by Ron Bousso; Editing by Emelia Sithole-Matarise and David Evans
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