LONDON: Major oil companies are expected to report a sharp rise in third-quarter profits as the US-Israeli war on Iran boosts refining and trading earnings, with investors watching how companies manage the additional cash and whether they increase spending.
Disruptions to shipping through the Strait of Hormuz following the start of the conflict in February have pushed energy prices to multi-year highs, creating opportunities for oil trading businesses to profit from market volatility.
Despite the windfall, major producers have pledged to maintain spending discipline in a sector historically marked by sharp cycles of growth and decline.
Shell, BP and TotalEnergies expect refining margins to rise threefold to fourfold in the third quarter compared with the same period last year. Shell has projected margins of up to $42 per barrel, while TotalEnergies expects cash flow from its refining and chemicals business to double from the previous quarter to around $4 billion.
ExxonMobil has indicated that stronger refining margins could increase its downstream profit by $4.5 billion compared with the previous quarter.
As companies prepare to release their third-quarter results at the end of October, investors are assessing whether they will maintain existing spending plans despite unusually strong earnings, RBC Capital Markets analyst Biraj Borkhataria said in a research note.
Chevron and ExxonMobil have used additional cash to reduce debt, while investors are expected to monitor Chevron’s investments in Venezuela and progress towards extending its contract to operate the TCO joint venture in Kazakhstan, which is developing the country’s largest oilfield.
HSBC expects Shell to announce a $3.5 billion share buyback for the fourth quarter after the company reduced its quarterly buyback programme to $3 billion earlier this year.
BP is also expected to benefit from stronger refining margins and gas marketing and trading activities. Investment bank TPH identified BP as its preferred company among European oil majors, estimating that underlying profit could exceed $7 billion, compared with $5.7 billion in the second quarter.
The company is also directing cash towards strengthening its balance sheet. Data from Citi indicates that BP’s net debt-to-operating-cash-flow ratio could decline to 0.8 times in the third quarter, from 1.7 times at the end of 2025.
HSBC said BP is likely to discuss future capital allocation when it reports its third-quarter results. The company is expected to reach its net-debt reduction target about a year ahead of schedule, aided in part by its decision to suspend share buybacks this year.
BP has also announced plans to provide a strategy update on December 15.
HSBC analysts Kim Fustier and Sadnan Ali said they expected the company to prioritise debt reduction, maintain stable capital expenditure and refrain from resuming share buybacks before 2028.
Shell and TotalEnergies are scheduled to report results on October 29, followed by BP, Chevron and ExxonMobil on October 30.