Big Oil's earnings season is off to a flying start, with three of Europe's largest energy companies reporting bumper quarterly profits that beat analyst expectations. The common thread: a record surge in refining margins, the profit earned from turning crude oil into fuels like gasoline and diesel.
UK-based Shell led the way, posting adjusted profit of $10.8 billion for the quarter—double what it made a year earlier and ahead of forecasts. The company said its refining business was the star performer, with the margin on each barrel of crude processed jumping to a record $42, up from $24 just three months earlier.
France's TotalEnergies kept the good vibes flowing, with adjusted profit more than doubling to a better-than-expected $9.1 billion. Refining was the standout there too, with profits from that business surging by over 400%.
Spain's Repsol was not to be outdone, posting a 260% rise in adjusted profit to $3 billion—again beating expectations. Its industrial division, which handles refining, trading, and transporting oil and gas, led the charge with profits up by more than 500%.
Why refining margins are soaring
Refining margins—the difference between what a company pays for crude oil and what it can sell refined products for—have been squeezed for years by overcapacity and weak demand. But a combination of factors has recently pushed them to historic highs.
Global refining capacity has tightened as some older plants closed and others faced maintenance issues, while demand for fuels like diesel and jet fuel has remained resilient. At the same time, sanctions and supply disruptions have reshaped trade flows, making it more profitable for refiners in some regions to process crude.
For the big integrated oil companies, refining is just one part of a broader business that also includes exploration, production, and trading. But when refining margins spike, it can have an outsized impact on profits—as these results show.
A change in behavior
Oil companies have a habit of getting carried away when times are good. In past booms, producers poured money into expensive projects that looked shiny when the cost per barrel was high, only to regret them when prices cooled and debts piled up.
This time, though, the industry seems to have learned a thing or two. Instead of splurging on expansion, energy giants are sending more money shareholders' way. Shell is ramping up its quarterly stock buybacks from $3 billion to $5 billion. TotalEnergies is buying back $2.5 billion this quarter and another $2.5 billion next. And Repsol is nearly doubling its buyback plans for the rest of the year to over $1 billion.
This shift reflects a broader trend across the sector. After years of disappointing returns, investors have pushed oil companies to prioritize shareholder returns over growth. The result is a more disciplined approach to capital spending, with excess cash being returned via dividends and buybacks rather than reinvested in megaprojects.
What it means for investors
For everyday investors, these results are a reminder of how cyclical the energy sector can be. When refining margins are high, profits can soar—but they can also reverse quickly if supply or demand shifts.
The decision to boost buybacks is generally seen as positive, as it can support share prices and increase earnings per share. But it also signals that management sees limited opportunities for profitable growth, which could cap long-term upside.
Investors should also note that these results are just the start of earnings season. Other oil majors, including US giants like ExxonMobil and Chevron, are due to report in the coming weeks, and their results will show whether the refining boom is a global phenomenon or concentrated in Europe.
For now, the message from Big Oil is clear: the good times are rolling, and shareholders are being invited to share in the spoils. But as history shows, the good times never last forever—so it's wise to enjoy them while they're here.
