Refinery margins and integrated oil companies

The EIA has reported that first quarter 2015 financial results for globally integrated oil companies show that total earnings were 54% lower than for the same time last year. Lower crude oil prices are a contributing factor to the decline in profits of the upstream sector at 80% compared to 2014 levels. However, profits in the downstream sector were the largest for any quarter since Q3 2012, and were approximately 95% higher than in Q1 of 2014, offsetting some of the decline in the upstream segment.

Crack spreads

Crack spreads refer to the differences between wholesale petroleum prices and crude oil prices, and they can serve as an indicator of refining profits, according to the EIA. Crack spreads for gasoline and heating oil averaged at 28 cents/gal. and 49 cents/gal. respectively in the first quarter of this year. These crack spread represent year over year increases of 7 cents/gal. for gasoline and 4 cents/gal. for heating oil.

First quarter earnings for this year form 11 global companies have shown that the high crack spreads during this time contributed to higher profits for the downstream segment. Even though absolute prices for both crude oil and petroleum products dropped in Q1 of 2015, compared to Q1 of 2014, 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 there fore led to downstream earnings accounting for 63% of combined earnings in the first quarter, compared to a 15% average downstream share from 2011 – 2014, according to the EIA.

Edited from press release by Claira Lloyd

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