Refiner Margins Fail to Fully Offset Low Upstream Earnings

Lower crude oil prices contributed to a decline in profits of $28 billion, or 80%, in the upstream sector compared to first-quarter 2014 profits. However, profits in the downstream sector were the largest for any quarter since third-quarter 2012, nearly $6 billion, or 95%, higher than in 2014, which offset some, but not all, of the decline from the upstream segment.

Crack spreads, which refer to the differences between wholesale petroleum product prices and crude oil prices, can serve as an indicator of refining profits, notes EIA. Crack spreads for gasoline and fueloil—based on futures prices for North Sea Brent crude oil and gasoline and fueloil in New York Harbor—averaged 28 cents/gal. and 49 cents/gal., respectively, in the first quarter of 2015. These crack spreads represent year-over-year increases of
7 cents/gal. for gasoline and 4 cents/gal. for fueloil.

First-quarter earnings statements from 11 global companies show that the high crack spreads during this time contributed to higher profits in the downstream segment. Even though absolute prices for both crude oil and petroleum products declined in first-quarter 2015 compared to first-quarter 2014, North Sea Brent crude oil prices fell more than wholesale gasoline and fueloil prices, resulting in an increase in the margin from refining crude oil. The combination of lower upstream earnings and higher downstream earnings led to downstream earnings accounting for 63% of combined earnings in the first quarter, compared to a 15% average downstream share from 2011 through 2014.