The Zhitong Finance App learned that the geopolitical conflict between the Middle East and Russia is reshaping the profit pattern of the global oil industry. As a large amount of refining capacity around the world was impacted, the supply of gasoline, diesel and aviation fuel continued to be tight, and the profit margins of refining companies soared to historic highs. The refining industry, which was once thought to be gradually declining amid the popularity of electric vehicles, has now ushered in an unprecedented profit boom.
Since this year, attacks in the Middle East, Ukraine's attacks on Russian refining facilities, and export restrictions imposed on Russia and other countries have all exacerbated the global shortage of refined oil products. According to Dallas Federal Reserve estimates, up to 10% of the world's refining capacity will be affected this year.
Tight supply forces refineries in other regions to operate at full capacity and give them more ability to price their products. In September of this year, the US Gulf Coast oil refining profit margin soared to a record high of 72 US dollars per barrel, more than tripling the level at the beginning of the year. Refining margins in Europe and Asia have also risen sharply, and gasoline, diesel, and aviation fuel prices have risen accordingly.
The profit explosion in the refining industry also boosted related stocks sharply. Since this year, Marathon Petroleum (MPC.US), Valero Energy (VLO.US), and Phillips 66 (PSX.US) have all accumulated a cumulative increase of more than 100%, ranking among the 20 best-performing constituent stocks in the S&P 500 index during the year.
Jeff Wyll, senior analyst at Neuberger Berman, who manages around $600 billion in assets, said this year's geopolitical conflict highlighted the importance of the refining business to the global economy. Over the past few years, the market has underinvested in refined oil production facilities, but refined oil products are actually an indispensable foundation for the operation of the economy.
Refining profits are even expected to surpass the oil extraction business and become a new profit engine for energy giants. Despite a 42% increase in crude oil prices in the third quarter and a quarterly average price of $91 per barrel, analysts still expect that the profit of ExxonMobil (XOM.US)'s refining business for the quarter will exceed its huge oil and gas production business. If the forecast comes true, this will be the first time since 2017 that the refining business's profit exceeds that of the upstream oil and gas production business.
Meanwhile, Shell's (SHEL.US) refining profit margin for the third quarter is also likely to hit a record high. According to analysts' forecasts compiled by Bloomberg, ExxonMobil, Chevron (CVX.US), Shell, Total Energy (TTE.US), and British Petroleum (BP.US) are expected to reach about $50 billion in total profit for the third quarter, which is expected to set the third-highest quarterly profit record in history, after the two quarters during which energy prices soared after Russia invaded Ukraine in 2022.
However, the current boom in the refining industry is not simply due to geopolitical conflicts; the long-term lack of investment in global refining capacity is a deeper reason.
Over the past decade, dozens of refineries in North America and Europe have been shut down one after another, and some facilities have been converted to produce biofuels. The US has not built any major refineries since 1977; last year alone, two large refineries closed. The construction of refining facilities in Europe has also come to a standstill, and the number of shutdowns continues to increase.
According to data from the International Energy Agency, the scale of global refining capacity investment has dropped by more than half since 2015.
This trend dates back to the early 2010s. At that time, international oil prices exceeded 100 US dollars per barrel, and many large oil companies chose to divest or reduce their refining business and invest more resources in oil and gas extraction.
In 2011, Marathon Oil spun off its refining business into Marathon Petroleum; in 2012, COP.US (COP.US) spun off Phillips 66. Since then, energy companies such as Murphy's Petroleum and Hess have successively withdrawn from the refining business.
Meanwhile, ExxonMobil, Shell, British Petroleum and Total Energy have sold or renovated dozens of refineries over the past 20 years, focusing their business on larger, more technologically advanced, and more profitable refining facilities.
Although the Middle East and other regions continue to build new refining facilities, ExxonMobil has also expanded the Beaumont refinery in Texas, and the additional production capacity is still insufficient to meet the growth in global fuel demand.
According to Dallas Federal Reserve data, global liquid fuel consumption increased by about 4 million barrels per day from 2019 to 2025, but refining capacity only increased by about 2.3 million barrels during the same period, showing a clear gap between supply and demand growth.
Marcus McGregor, managing director of commodity research at asset management company Conning, said that the global refining supply side is shrinking faster than fuel demand is falling, and refining companies are the main beneficiaries of the current structural imbalance.
For consumers, the refining industry's profit feast means heavier pressure on living costs. Since this year, diesel prices in the US have risen by a cumulative total of 83%, and gasoline prices have risen by 50%, further boosting global inflation and putting political pressure on governments. As the US midterm elections on November 3 approach, rising fuel prices are also bringing new challenges to the Trump administration.
Wyll believes that until global refining investment reaches a level sufficient to meet demand, refiners' valuations are justified in maintaining a position higher than the historical average, and this adjustment process may take years.
However, this round of sharp rise in refining profits has not benefited all refiners in the world equally.
According to the International Energy Agency, record tanker freight rates and higher crude oil prices are squeezing the profit margins of European and Asian refiners. In contrast, US refiners were able to obtain crude oil raw materials at relatively favorable prices, so profit margins climbed to historic highs.
Morningstar analyst Allen Good said that refineries in the US Gulf Coast region are currently enjoying extremely lucrative profits. Although European and Asian refiners have also benefited from rising prices for refined oil products, high crude oil procurement and transportation costs mean that the actual profit improvement may be lower than reflected in the benchmark refining profit margin.
Good also warned that refining profits in some regions may decline in the fourth quarter of this year.
It is worth noting that even if the conflict in the Middle East eases, the tight supply situation in the global refining industry may not be lifted quickly.
HSBC analyst Kim Fustier pointed out that even if the Strait of Hormuz reopens immediately, crude oil prices may fall as rapidly as during the cease-fire this summer, but it will take longer to restore damaged or closed refining capacity.
She believes that the shortage of refining capacity is the most difficult problem to solve quickly in the current energy supply chain.
However, this does not mean that large energy companies will immediately begin a new round of refinery construction. Fustier anticipates that energy companies are more likely to suspend plans to further sell, shut down, or remodel refining facilities rather than investing heavily in new projects.
Conning's McGregor predicts that high refining profit margins may continue until mid to late 2027, then return to normal levels as shipping volume gradually recovers in the Strait of Hormuz.
He reminded energy company management that investments should not be blindly expanded due to short-term profiteering. Historical experience shows that energy price spikes are sometimes short-lived, and in the face of the current profit boom, maintaining capital discipline may be more important than rapid expansion.