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Higher crack spreads led to better refining margins for Integrated Oils, but can’t offset their upstream loses

Integrated oil and gas companies saw much higher profits from their refining operations in the first quarter of this year than in Q1 2014, but it is not enough to offset the effects of the precipitous fall of crude oil prices on the E&P sector. Profits in the downstream sector were the largest at the beginning of this year than for any quarter since Q3’12, almost $6 billion (95%) high than in Q1’14, according to the Energy Information Administration (EIA).

The EIA suspects that the higher refining margins are due to the increased crack spreads between the European benchmark Brent and West Texas Intermediate (WTI). Crack spreads for gasoline and heating oil averaged $0.28 per gallon and $0.49 per gallon, respectively, in the first quarter of 2015. These crack spreads represent a year-over-year increase of $0.07/gal for gasoline and $0.04/gal for heating oil.

For the 17 quarters tracked by the EIA, downstream never accounted for more than approximately 30% of integrated oil companies’ profits. In Q1’15, the percentage of profits made up of downstream operations shot up to more than 60% from just under 20% the quarter before.

Despite the tremendous growth in refinery margins, downstream operations have not been enough to make up for the loss in profits seen in E&P. Total earnings were $22 billion, or 54%, lower in Q1’15 than in the first quarter of last year. Profits from E&P declined $28 billion, or 80%, much more than could be made up by the downstream segments of integrated oil and gas companies.

EIA Integrated OandG Profits


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