Total’s refining margin sinks to six-year low as sales slump, crude rebounds


Total’s refining margin lowest since Q2 2014

Oil price rebound outpacing fuel sales recovery

Further refining margin pain into Q3

London —
Total, Europe’s biggest refiner, saw its average refining margin slump to the lowest level in six years during the second quarter when demand for fuels collapsed due to COVID-19 lockdowns while oil prices began to recover.

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Total’s “variable cost margin” for its European refineries in the second quarter fell to $14.30/mt or about $1.95/b, down from $26.30/mt in the previous quarter and $27.60/mt in the year-earlier period, it said July 15 in a trading statement.

The second-quarter average was the lowest since Q2 2014, when it was $10.90/mt, although Total used a different methodology to calculate its margin at the time.

European refining margins had already begun to fall sharply in March as lockdowns tanked oil product demand globally, causing Q1 refining to shrink by around 20% from the previous quarter. Global oil demand shrank by 16.4 million b/d in the second quarter, according to the International Energy Agency.

Although European driving activity continues to rebound from lockdown lows in early April, Brent crude prices have surged by almost $15/b over the same period to over $40/b. Refining margins have also been hit by pressure from a global oil product surplus.

All of the IEA’s margin indicators for Northwest Europe turned negative on a monthly average basis in May, with Brent cracking margins turning negative for the first time on a monthly basis since 2006.

Getting weaker

Speaking at the end of May, CEO Patrick Pouyanne said he expects Total’s refineries to operate at 70% of capacity this year, about 15 percentage points below the 2019 average, “which is going to impact the cash flow from refining.”

Total’s 93,000 b/d Grandpuits refinery in France restarted operations in early June after several months of outages and the company is contemplating the future of the site.

Last week, the IEA said the demand destruction caused by the coronavirus pandemic has set the refining sector back “by several years”, with 2021 demand still forecast to be below that of 2017, while global refining capacity has increased.

It forecast global refinery runs in 2020 would fall by 6.4 million b/d to 75.3 million b/d, but increase by 4.7 million b/d in 2021.

BP’s refining marker margins have continued to fall in the third quarter, and last week the major said its margins in Northwest Europe averaged $4.40/b so far in the quarter, down from $4.80/b in Q2.

Shell last month cut its long-term refining margin assumptions by around 30% to reflect a weaker, post-pandemic market outlook.

Over the second quarter, Total said its realized average liquids price was $23.40/b, a $10/b discount to the average Brent benchmark price of $33.40/b for the period.