Global — Major oil companies are approaching their third-quarter earnings announcements with stronger prospects for refining and trading profits. However, the expected gains are also putting management teams under pressure to demonstrate that they can maintain spending discipline during periods of exceptional profitability.
The US-Israeli war on Iran, which began in February, has severely disrupted shipping through the Strait of Hormuz and driven energy prices to multi-year highs. Market volatility has created additional opportunities for oil trading operations, while rising refining margins are expected to support earnings at some of the world’s largest energy companies.
Shell, BP and TotalEnergies expect their refining margins to be three to four times higher in the third quarter than a year earlier. Shell has indicated that its refining margin could reach a record $42 per barrel.
TotalEnergies anticipates that cash flow from its refining and chemicals operations will double from the previous quarter to around $4 billion. Exxon has also indicated that stronger refining margins could add $4.5 billion to its downstream profit compared with the previous quarter.
The developments point to a highly profitable quarter for major oil producers. Yet investors are increasingly concerned about how the companies will deploy the additional cash, given the industry’s history of heavy spending during boom periods followed by difficulties when market conditions deteriorate.
RBC Capital Markets analyst Biraj Borkhataria has raised the question of whether oil majors will stick to their existing spending plans despite the prospect of exceptional earnings.
Chevron and Exxon have so far focused on reducing debt. Investors will also be monitoring Chevron’s investment plans in Venezuela and its efforts to extend its contract to operate the TCO joint venture in Kazakhstan, which is developing the country’s largest oilfield.
Shell, meanwhile, could increase returns to shareholders. HSBC expects the company to announce a $3.5 billion share buyback for the fourth quarter. Earlier this year, Shell slowed its buyback program to $3 billion per quarter.
BP is also positioned to benefit from stronger refining, gas marketing and trading performance. Investment bank TPH estimates that the company’s underlying profit could surpass $7 billion, up from $5.7 billion in the second quarter.
The stronger earnings are expected to help BP improve its financial position. Data from Citi cited by Reuters projects that the company’s net debt-to-operating-cash-flow ratio will fall from 1.7 times at the end of 2025 to 0.8 times in the third quarter.
BP could achieve its debt-reduction target about a year earlier than planned. HSBC analysts Kim Fustier and Sadnan Ali said the company is likely to concentrate on further debt reduction, keep capital expenditure stable and refrain from resuming share buybacks before 2028.
BP has also scheduled a strategy update for December 15.
The upcoming earnings reports should offer greater clarity on how the companies intend to balance shareholder returns, debt repayment and long-term investment.
Shell and TotalEnergies are scheduled to report on October 29, followed by BP, Chevron and Exxon on October 30.
For investors, the key question is whether the latest earnings windfall will strengthen corporate balance sheets and create sustainable shareholder value, rather than trigger another cycle of aggressive spending.
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