BP warns weak refining margins to hit Q3 profit

BP followed sector rival Shell and warned profits would fall by as much as $600m on the back of declining refining margins and oil trading driven by the global slowdown for fuel products and weaker crude prices.

Upstream production in the third quarter was now expected to be broadly flat compared to the prior three months, with output broadly flat in oil, gas & low carbon energy, the company said in a trading statement on Friday.

The oil production and operations unit third-quarter result would be impacted by $100-$300m.

Net debt was also forecast to be higher, driven primarily by the impact of weaker refining margins and by the rephasing of around $1bn of divestment proceeds into the fourth quarter.

Shell and US giant Exxon both issued similar warnings in recent days as global oil refiners face lower earnings amid weaker demand from major clients such as China and a move towards electric vehicles. Oil prices fell by 17% in the third quarter, the largest quarterly decline in a year, on worries about the global oil demand outlook.

BP's second-quarter underlying replacement cost profit, its definition of net income, was $2.756bn.

“This statement covers a period when oil prices fell, although the recent turmoil in the Middle East has seen crude recover and, assuming this holds, that may be reflected in BP’s performance for the final three months of the year," said Hargreaves Lansdown analyst Dan Coatsworth.

“This brief teaser comes ahead of the third-quarter numbers in full on 29 October when BP will be expected to address reports it is abandoning plans to cut its oil and gas output by a quarter by 2030."

“BP has been watering down the net zero strategy it unveiled in 2020 as its shares have fallen behind its US counterparts and UK rival Shell. However, CEO Murray Auchincloss, who took the helm on a permanent basis at the start of the year, needs to convince the market he has a long-term plan which isn’t just about tearing up the old one.”

Reporting by Frank Prenesti for Sharecast.com