BY COMFORT OGBONNA
The United States’ two largest oil producers, ExxonMobil and Chevron, have warned that global supplies of diesel and other refined petroleum products are expected to remain tight through the second half of the year, raising the likelihood of continued high fuel prices as ongoing geopolitical tensions disrupt energy markets.
The companies issued the outlook after reporting significantly stronger refining profits for the second quarter, driven by shrinking global fuel inventories, reduced exports from China, and refinery outages in Russia that have tightened supplies of refined products worldwide.
Executives from both companies said the combination of supply disruptions and resilient demand has created favorable conditions for refiners, but they cautioned that the imbalance is unlikely to ease quickly.
Chevron Chief Executive Mike Wirth said refined fuel markets are expected to remain under pressure well into the third quarter and possibly beyond. He noted that demand for distillate fuels, including diesel and heating oil, is expected to remain strong despite economic uncertainty, supporting elevated prices in the months ahead.
The tightening market has already begun affecting consumers, with average gasoline prices in the United States climbing above $4 per gallon once again. Higher fuel costs could become an important political issue ahead of the November midterm elections, as rising energy prices continue to place pressure on household budgets and inflation.
Both companies emphasized that they are operating their refining facilities at exceptionally high levels to help meet demand.
ExxonMobil reported that its U.S. refineries operated at high utilization rates during the second quarter, allowing the company to achieve record diesel production. Chevron also said its U.S. refining network processed more than one million barrels of crude oil per day during the quarter, marking the highest throughput in its history.
Despite these production records, company executives warned that refiners cannot continue operating at maximum capacity indefinitely.
ExxonMobil Chief Executive Darren Woods said restoring normal crude shipments through the Strait of Hormuz remains essential to improving global oil supplies. The strategically important waterway serves as one of the world’s busiest oil transportation routes, and any disruption can significantly affect global energy markets.
Woods explained that while refiners have increased production to offset supply shortages, maintaining such high operating rates over an extended period is not sustainable. He warned that refining capacity constraints are likely to remain a challenge for the global energy industry for some time.
He also noted that ExxonMobil operates one of the world’s largest refining networks outside China, making the company particularly exposed to disruptions in global crude supplies that affect downstream operations.
In addition to supply challenges, refiners must also conduct routine maintenance to ensure facilities continue operating safely and efficiently.
Chevron said planned maintenance during the third quarter is expected to reduce downstream earnings by between $175 million and $225 million. ExxonMobil, however, indicated that its scheduled maintenance activities would be lower during the third quarter than in the previous three months, potentially allowing for stronger refinery operations.
ExxonMobil’s adjusted downstream earnings rose to $4.1 billion during the second quarter, reflecting stronger refining margins fueled by tighter supplies and increased demand for refined products.
Even so, some market analysts had expected the company to post even stronger refining profits because of the size and scale of its global refining operations.
In quarterly financial results released Friday, ExxonMobil narrowly missed analysts’ overall earnings expectations, while Chevron exceeded market forecasts.
Investors responded differently to the two reports. ExxonMobil shares slipped about 1% following the earnings announcement, while Chevron’s stock gained roughly 2% as investors welcomed its stronger-than-expected performance.
Industry analysts believe the outlook for refiners remains favorable as long as global supplies of diesel and other refined fuels remain constrained. However, they also caution that geopolitical developments, refinery maintenance schedules, shipping disruptions, and changes in global fuel demand will continue to play a major role in determining energy prices over the remainder of the year.
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