BP warns profits likely to be lower than expected

BP has warned that its profits are likely to be weaker than expected because of lower margins in its refining business and a drop in performance in its oil trading division.

The company said on Tuesday that “significantly lower realised refining margins” would wipe between $500mn and $700mn from its second-quarter earnings, which are due to be released at the end of the month.

The depressed picture for refining echoes that of ExxonMobil, which on Monday said lower margins across the industry would hurt its second-quarter profits.

Analysts at Jefferies said they expected BP’s quarterly earnings to be about 20 per cent lower than expected, given the updated guidance from the company.

RBC Capital Markets trimmed its net income estimates for BP for the second quarter to $2.7bn from $3.3bn.

BP shares dropped 4 per cent to 453.80p by early afternoon in London trading on Tuesday.

The weaker earnings forecast comes as chief executive Murray Auchincloss tries to win back investor confidence after he was permanently confirmed in the top job in January.

The former finance chief, who took over from Bernard Looney last year, missed analysts’ earnings expectations in the first quarter after promising to be laser-focused on returns to shareholders.

“We just have to be pragmatic. We need to deliver the returns we promised to the market, otherwise we won’t move projects forward,” he said in May.

BP said the result from its oil trading business was “expected to be weak” following a strong first quarter while gas trading was expected to be “average”.

Refining margins in the second quarter were significantly weaker for middle distillates, which include jet fuel, diesel and lighter grades of fuel oil, BP said.

The group added that it would take an impairment of up to $2bn in the second quarter stemming from a plan to scale back its refining operations at its Gelsenkirchen refinery in Germany.

BP said in March that it planned to reduce crude oil processing capacity at the refinery by about a third from 2025, owing to a weaker demand outlook. Built in 1935, the plant has a processing capacity of 265,000 barrels a day.

BP’s announcement comes after rival Shell last week warned of non-cash impairments of up to $2bn in the second quarter, relating to the sale of its chemicals plant in Singapore and the pause of construction at one of Europe’s largest biofuel plants in the Netherlands.