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The war between Iran and ROI ushers in a golden age of oil refining. Bousso: It won't be long.
The Iran war has triggered record oil refining earnings that have boosted Big Oil's profits, giving new life to a business which many investors had written off. Refining is expected to produce strong returns over the next few years. However, structural changes in oil demand will cause its star to fade. Refining is the least glamorous part of the oil industry, despite its critical role in the global energy chain. Western oil majors have been steadily retreating from the sector for the last two decades. They were 'deterred' by high operating expenses, notoriously volatile profit margins, increasing carbon costs, and a growing competition from state-backed refining companies in the Middle East. This retreat intensified in the late 2010s in Europe as companies and governments bet more on the rapid adoption of electric vehicles to curb fuel demand in 2030, thus reducing the need for refining investments. Western oil giants saw their refining capacities shrink dramatically as a result. According to calculations by Open Interest, the combined refining volume for BP and Chevron, Exxon Mobil Shell, TotalEnergies, and Exxon Mobil fell from 16,4 million barrels a day in 2005 (representing around 22%) to 10,4 million bpd, or approximately 13% of global crude processing. Shell led the retreat by reducing its refinery interests from 40 to seven in the last five years. The refining climate has improved in the last year due to the increase in conflict in oil-rich areas. First, there's Iran. Refinery margins have reached record levels due to the combination of the effective closure of Strait of Hormuz for months, which has limited refiners access to crude oil and Tehran's attacks against refineries in the Middle East. Refineries in Asia were forced to reduce their operating rates due to the loss of Middle Eastern crude. China, which has huge crude stocks, chose to reduce its refining activities and stop fuel exports in order to compensate for the sharp drop in crude imports. These disruptions combined to remove around 5 million barrels a day, or 6% of global refining production before the war, in the second quarter. According to the International Energy Agency, global refinery runs averaged 78 million barrels per day, the lowest level since the COVID-19 Pandemic of 2020. The relentless drone attacks by the Ukrainians on Russian energy infrastructure has led to a sharp reduction in Russia's refinery output. This forced Moscow to ban exports of diesel. That announcement sent diesel prices soaring. Pricing Superpower The combined impact of both conflicts on the profitability of refining has been "dramatic". Big Oil has enormous pricing power due to the shortage of refined products and operators are encouraged to operate plants at full capacity. U.S. refineries - which became the world's biggest fuel suppliers during the war - operated at 97% capacity in the week ending July 24. This was well above the long-term average for around 90%. BP's refining indicator margin, a measure of global refining profit, climbed from $17 per barrel to $30 in the second quarter, up from $12 a quarter earlier and $17 during the first. Indicator has averaged 42 dollars per barrel in the third quarter. Exxon reported downstream profits of $5.5billion in the second quarter. This was its highest result since 2022. The record diesel production drove this. Chevron’s downstream earnings rose to $4.9billion, their highest level for the decade. Shell's products division reported an adjusted profit of $2.5 billion, its highest in a decade. Its refining network was operating at 102% utilisation during the second quarter. Patrick Pouyanne, the Chief Executive Officer of TotalEnergies, summed up it well when he told investors late last month that their refining division had performed "exceptionally." BP will report its earnings on Tuesday. CAN IT LAST? The question is when. The fuel market would be impacted by a sustainable solution to the U.S./Iran conflict, which includes reopening the Strait of Hormuz in its entirety and eventual recovery of Chinese refinery activity. But when this might happen is still unknown. It is clear that the problems of this industry cannot be fixed immediately. Repairing the damage to dozens refineries in Russia and the Middle East will take many months and even years. Global spare refining capacity is extremely low. Demand is also a positive factor. Concerns about energy security have been rekindled by the Iran war. To protect themselves from future supply shocks, many governments are expanding their strategic storage facilities. The first step for governments is to replenish the stocks that were depleted by the conflict. According to estimates by the U.S. Energy Information Administration, global oil stocks dropped by 5.1 millions barrels per day during the second quarter. They are expected to drop by another 2.2 million bpd by the third quarter. The rebuilding of diesel, gasoline, and jet fuel inventories will take years, creating a persistent demand. Alan Gelder is the senior vice president of refining for Wood Mackenzie. He expects that refining margins will remain high and utilisation rates will be high through the end decade. This is due to the continued growth of?oil and the limited pipeline of refining projects. The party won't last The boom is a symptom of underlying fragility. War, damaged infrastructure, and scarcity are the main reasons for today's windfall profits, not a structural improvement of industry fundamentals. The world's capacity has been reduced faster than the demand. This?might?not be the case forever. Many countries that have limited refining capacity are now re-evaluating whether they require more local processing capability. Australia is one country that has already begun to consider such plans. Over time, these investments could lead to a new surge of capacity that would eventually lead a surplus. Oil majors are aware of this fact. The decline of the refinery sector may be slowed by a few years of high margins. They are unlikely to reverse the decline. You like this column? Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
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Europe's shrinking river systems reduce power production, transport and company profits
Low water levels have impacted the transport of goods in Europe's rivers, slowed down electricity production and reduced company earnings. This has stoked fears over the impact of extreme heat and unpredictable rainfall on Europe's economy. Europe is experiencing the fastest climate change of any continent, with record-breaking heatwaves. The drought has forced businesses to rethink their business practices. Waterways are becoming less reliable for transporting goods like grains and oil or producing electricity, which is needed by millions of people to cool their homes. Alessandro Armenia is a power analyst with commodities data and analysis firm Kpler. The current dynamic means that either we will see blackouts, or we must invest more. HYDROPOWER & NUCLEAR OUTPUT CUTS Production of nuclear energy in Hungary and hydropower has fallen in Serbia due to record?low levels of water along the Danube. The Danube passes major cities such as Vienna, Budapest, and Belgrade, on its route between Germany and the Black Sea. Paks, a nuclear power station that generates about half of Hungary's electricity will shut down Monday and possibly for several weeks, because the water levels in the river, the cooling water source for the plant, are expected to remain too low to allow it to function safely. Davor Maljokovic, production director at Djerdap?1, Serbia’s largest hydropower station, said that output had fallen to just 20% of its capacity. The once wide shipping channel next to it has now shrunk, exposing sandbanks, gravel bars, and other debris. Serbia's EPS state power utility reported that the lack of water had also?disrupted cooling system at Serbia's Kostolac co-fired power plant, forcing it to reduce output. Both Serbia and Hungary claim they will import electricity to make up for the 'losses,' a costly move when demand is high on the spot market. The state-owned nuclear power company Nuclearelectrica in Romania also shut down one of its reactors this week due to the same issue. A second reactor is expected to follow soon, potentially depriving Romania of a fifth its electricity requirements. France also reduced nuclear power production due to low water levels and rising river temperatures. WATER LEVELS CAN ALSO DELAY TRANSPORTATION The energy industry is not the sole loser. Cezar Gheorghe, consultant AGRIColumn in Romanian grain markets, told farmers on the Danube that they were having difficulty shipping their crops due to low water levels. Only the ports closest to the Black Sea are still operational. Gheorghe stated that barges cannot pass through other ports. "Crops purchasers could offer lower prices to farmers and load them into trucks. However, there may also be a lack of trucks." A port spokesperson said that the amount of cargo being transported from and to Rotterdam, Europe's biggest sea port, to the Rhine is about 10% less than usual. This has been happening every week since July began. Chemical and oil products tankers, and dry bulk carriers in particular are affected by the?larger draught of container barges. This means that they need to be positioned deeper and at greater depths. The drought has reduced company earnings. Apart from the devastation caused by wildfires, and the temperatures that have led to thousands of deaths in excess, the climate change has also affected the balance sheets of companies. Austrian utility Verbund said that the drought conditions in the first half of last year reduced earnings by EUR370 million compared to a year with normal hydrological conditions. French utility EDF announced on Friday that earnings for the full year before interest, taxes, depreciation, and amortization in 2026 would be down by 10% due to low market prices, and heatwaves reducing power output. The Po River basin in Italy has reached a high level of water scarcity. This is threatening the rice crops and water supply for drinking throughout the north. Renato Mazzoncini is the Chief Executive Officer of A2A regional utility. He expects hydropower production to be 3.9 TWh this year, compared with a historical average. He said that "some of our reservoirs were under pressure." "We need to do a rain dance." (Additional reporting from Inti Landauro, Brussels; Giancarlo Navach, Milan; Danny Callaghan, Gdansk; Marleen Kasselbier, Zurich; Rene Wagner, Berlin; Writing and editing by Edward McAllister)
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Data shows that Russian pipeline gas exports into Europe fell by 5.2% year-on-year in July.
Calculations showed that the average daily natural gas supply to Europe by Russian energy giant Gazprom via TurkStream's undersea pipe fell 5.2% compared to a year earlier, falling from 48.8 million cubic meters in July. The only remaining transit route for Russian gas into Europe is through Turkey after Ukraine did not extend the five-year transit agreement with Moscow that expired in January of 2025. According to calculations based on data from the European Gas Transmission Group Entsog, total Russian gas supplies via TurkStream were?at 1,51 billion cubic metres in July last year. This is down from 1,59 bcm. The first seven months of this year saw a 3.5% increase in supplies to approximately 10.25 bcm?year-onyear. Gazprom has not responded to a request for comment. It hasn't published its own statistics every month since?2023. According to calculations, the company's exports of gas to Europe dropped by 44% in the past year,?to only 18 bcm. This is the lowest since the mid-1970s, following the closing of the Ukrainian transit route. calculations. In 2018-2019, Russian pipeline gas exports to Europe reached a peak of around 180 billion cubic meters per year. (Reporting and editing by Andrew Osborn.)
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Data shows that two tankers carrying Saudi oil left the Red Sea at the weekend.
Shipping data revealed on Monday that two tankers?laden with Saudi oil? crossed the Bab el-Mandeb strait at the weekend. Traffic in the Strait of Hormuz slowed after reports of vessel attack. Kpler data shows that the number of cargo vessels passing through the Bab el-Mandeb strait dropped to 18 on Sunday from 27 on Friday and 28 on Saturday. On July 20, the Iran-aligned Houthis announced a?maritime embargo against Saudi Arabia, opening a new battlefront against the U.S. The data shows that the Suezmax tanker Lesvos, and the Very Large Crude Carrier Desh Vaibhav left the Red Sea without their Automatic Identification Systems transponders (AIS). It was not immediately known where the Lesvos, flying under the Malta flag, was heading. It was carrying approximately 1 million barrels of Saudi crude. The Desh Vaibhav is carrying 2 million barrels and heading to India's Sikka Port where Reliance Industries receives its crude oil. Dynacom, manager of the Lesvos and Shipping Corp of India, did not respond to requests for comments. Separately a tanker flying the Panama flag and carrying Russian naphtha changed its course to go around Africa rather than through the Red Sea. STRAIT of HORMUZ Kpler data shows that one tanker loaded with liquefied gas from Iran crossed the Strait of Hormuz on Sunday. AIS may be disabled on some vessels and they cannot be immediately accounted for. Since Saturday, the United Kingdom Maritime Trade Operations Agency has reported three additional tanker attacks. The Greek shipping company Gaslog reported an incident on their LNG tanker Gaslog Shanghai, on July 31, Data showed that the number of vessels carrying commodities through Hormuz dropped to 10 on Sunday, after Friday's high of 19. This was the highest total since mid-July. Two more VLCCs,?Spain B and Noble?, left the Hormuz Strait on Friday while another entered. The VLCC Kiku is carrying 1.4 million barrels from Qatar and the VLCC Rotterdam Energy has 2,000,000 barrels of Das crude from the United Arab Emirates. ADNOC Logistics & Services (the owner of Rotterdam Energy) declined to comment. Apex Shipping, the manager of Kiku, has not responded to a comment request. (Reporting and editing by Clarence Fernandez, Sonali Paul and Emily Chow; Additional reporting by Emily Chow, Mohi Nrayan)
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Wall Street Journal, August 3,
These are the most popular?stories from the Wall Street Journal. The Wall Street Journal has not'verified' these stories and does not vouch for their accuracy. The U.S. Treasury Department and Japan's Ministry of Finance conducted a joint intervention in foreign exchange to purchase the yen. German startup Agile Robots is expecting its revenue to double this year, from 300 million Euros. This will help it become profitable within two to three years. Acting Attorney-General Todd Blanche announced that he had formally rescinded the $1.8 billion "anti weaponization fund"?that was causing an impasse with two Republican senators who refused to confirm him for a permanent position. Flight attendants from WestJet, Canada’s second largest airline, quit their jobs on Sunday, after they failed to reach an agreement. Sandoz Group has agreed to pay a total of $478.5 Million in order to settle an antitrust lawsuit over generic drug pricing?in the U.S. EasyJet has announced that it has extended the deadline to submit a bid for Castlelake until August 7, at which time both parties will be asked to confirm their intentions. (Compiled by Bengaluru Newsroom)
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Russia develops alternate routes and increases protection for Black Sea cargo ships
Russia announced on Monday that it was increasing the protection of ships in the Azov/Black Sea basin, while also developing alternate 'cargo routes. This follows the'sharp' escalation in attacks by both sides at sea in the conflict in Ukraine. In response to the "tense situation" in the Sea of Azov caused by hostile drone attacks against maritime vessels, the Russian Transport Ministry said it had created a taskforce to find new routes and to switch cargo flows to alternative modes of transportation. In a press release, it stated that "a number of stevedoring firms have already expressed their willingness to handle additional cargo volume and increase shipment rates at their terminals within their operational capability." In cooperation with the defence ministry, "additional steps are being taken to ensure navigational security and protect maritime vessels within the Azov/Black Sea basin". In recent weeks, Russia, which is the largest exporter of wheat in the world, and Ukraine have attacked each other's export facilities and commercial vessels on the Black Sea. This has pushed the price of wheat higher globally. The'main grain lobby in Russia' warned on Friday about the threat of a Ukrainian drone attack on Russian ships and ports that could cause a shutdown in grain exports through the Black Sea. This would increase prices and lead to hunger in Africa and the Middle East. UAC, Ukraine's largest agricultural union, warned that Russian strikes near Odesa, a southern port, were limiting Ukrainian exports during the crucial harvest season and could have an impact on global food supplies.
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Search for missing 28 after fire on ferry in Madura Island, Indonesia
Officials in Indonesia continue to search for the 28 people who are still missing after a ferry caught on fire near?Indonesia?s Madura Island, according to an official. Authorities had reported that the KM Mutiara Sentosa, which was carrying 271 'passengers', was traveling from Indonesia's second-largest?city of Surabaya in East Java province, to Makassar in South Sulawesi when it caught fire. Madura Island is located just off the northeastern coast Java. Arman Asmara, Director of Marine and Air Affairs at East Java Police, said that 28 of the 271 people on board remain missing. Five confirmed deaths and 238 were rescued. Arman stated that the Navy and seven boats, as well as a helicopter, were deployed to search for the missing persons. He added that the'seven boats' deployed included a naval corvette as well as speed boats and a patrol vessel capable of carrying up to 100 passengers. Rescuers have focused their search in an area that extends 10 miles to the east and 10 miles to the west from the incident. Arman stated that the search operation could last up to 14 days. He added that the cause of the accident is still unclear. On?Monday, all the victims were evacuated from the Port of Gapura Surya Nusantara to Surabaya. Since Sunday evening, the families of the victims have been waiting in the port. Ria was one of the families who were waiting for news about her uncle. She said: "I tried contacting continuously after I received the information, but his 'cellphone was not working. Then I called his wife to ensure that my uncle was aboard the ship and it was true." She added, "I've never been able contact him and find out his condition until now." Indonesia, a country of 17,000 islands, is heavily reliant on ferries for transportation. Sea routes are more accessible and affordable than air travel. Safety standards aren't always enforced and accidents happen quite often. Reporting by Ananda Teresia and Prasto Waroyo from Jakarta, Surabaya respectively; editing by David Stanway
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The war between Iran and ROI ushers a golden age of oil refining. Bousso: It won't be long.
The Iran war has triggered record oil refining earnings that are reviving the Big Oil business. Many investors had written it off. The sector is expected to deliver strong returns over the next few years. However, structural changes in oil demand will cause refining to lose its shine quickly. Refining is the least glamorous part of the oil industry, despite its critical role in the global supply chain. Western oil majors have been steadily retreating from the sector in the past 20 years, due to high operating costs, volatile margins, rising carbon costs, and increasing competition from state-backed refining companies from the Middle East and Africa. This retreat accelerated in the late 2010s in Europe as companies and governments bet more on the rapid adoption of electric vehicles to curb fuel demand in the 2030s. Refining capacity of Western oil giants shrank drastically as a result. According to calculations by Open Interest, the combined refining volume for BP and Chevron, Exxon Mobil Shell, TotalEnergies, and Exxon Mobil fell from 16,4 million barrels a day in 2005 (representing around 22%) to 10,4 million bpd in last year. This represents roughly 13% worldwide crude processing. Shell led the retreat by reducing its refinery interests from 40 to seven in the last five years. The refining climate has improved in the last year due to the increase in conflict in oil-rich areas. First, there's Iran. Refinery margins have reached record levels due to the combination of the effective closure of Strait of Hormuz for months, which limited refiners access to crude oil and Tehran's attacks against refineries in the Middle East. Refineries in Asia were forced to reduce their operating rates due to the loss of Middle Eastern crude. China, despite its huge crude stocks, chose to reduce refining and fuel exports aggressively to compensate for the sharp drop in crude imports. These disruptions combined to remove around 5 million barrels a day or 6% of global refining production from pre-war levels in the second quarter. According to the International Energy Agency, global refinery runs have averaged 78 million barrels per day, the lowest since the COVID-19 Pandemic of 2020. In the meantime, Russian refinery output has been severely reduced by months of unrelenting drone attacks from Ukraine on Russian energy infrastructure, which forced Moscow to ban exports of diesel. That announcement sent diesel prices soaring. Pricing Superpower The combined impact of both conflicts on the profitability of?refining has been dramatic. Big Oil has enormous pricing power due to the shortage of refined products. This has encouraged operators and refineries to operate at full capacity. U.S. refineries that emerged as the largest fuel suppliers in the world during the conflict operated at 97% of capacity for the week ending July 24. This is well above the long-term average of 90%. BP's refining indicator margin, a measure of global refining profit, climbed from $17 per barrel to $30 in the second quarter, up from $12 a quarter earlier and $17 during the first. Indicator has averaged 42 dollars per barrel in the third quarter. Exxon reported downstream profits of $5.5billion in the second quarter. This was its highest result since 2022. The record diesel production drove this. Chevron’s downstream earnings rose to $4.9billion, their highest level for this decade. Shell's products division reported an adjusted profit of $2.5 billion, its highest in a decade. Its refining network was operating at 102% utilisation during the second quarter. Patrick Pouyanne, the Chief Executive Officer of TotalEnergies, summed up it well when he told investors late last month that their refining division had performed "exceptionally." BP will report its earnings on Tuesday. CAN IT LAST? The question is when. Fuel markets would be impacted by a sustainable solution to the U.S./Iran conflict, which involves a full reopening of Strait of Hormuz. It is clear that the problems of the industry cannot be fixed immediately. Repairing the damage to dozens refineries in Russia and the Middle East will take many months and even years. Global spare refining capacity is extremely thin. Demand is also a positive factor. Concerns about energy security have been rekindled by the Iran war. To protect themselves against future supply shocks, many governments have expanded strategic storage facilities to store both crude oil and refined fuels. The first step for governments is to replenish the stocks that were depleted by the conflict. According to estimates by the U.S. Energy Information Administration, global oil stocks dropped by 5.1 millions barrels per day during the second quarter. They are expected to drop by another 2.2 million bpd by the third quarter. The rebuilding of diesel, gasoline, and jet fuel inventories will take years, resulting in persistent demand. Alan Gelder is the senior vice president of Wood Mackenzie's refining division. He expects that refining margins will remain high and utilisation rates will be high through the end decade. This is due to the continued growth of oil demand, and the limited pipeline of refining projects. The party won't last The boom is a symptom of underlying fragility. War, damaged infrastructure, and scarcity are the main reasons for today's windfall profits, not a structural improvement of industry fundamentals. The world's capacity has been reduced faster than the demand. But this might not last for very long. Many countries that have limited domestic'refining capacity are now reevaluating whether they need to increase their local processing capability. Australia, for instance, has already begun to consider such plans. Over time, these investments could lead to a new wave in capacity and ultimately an oversupply. Oil majors are aware of this fact. Exceptional margins for a few years may be enough to slow down the decline of refining. They are unlikely to reverse the decline. You like this column? Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
Shein offers cash payments and more shares to late-stage investors before the IPO
Shein may lower the cost of investing for 'late-stage investors' as it pursues a lower valuation in its IPO, according to documents filed with the HKSE.
Public filings revealed that the?company could offer payouts to?early?investors and more shares at a lower conversion price in exchange for their holdings.
The plans confirmed in the public disclosure confirm a report from July in which a direct source said that the company would?compensate its investors for the decrease in valuation including cash payment.
Shein's valuation dropped from $98.2?billion in a fundraising round of 2022 to $64?billion in a round of 2023. Sources told us that the firm is looking for a valuation of up to $50 billion at its upcoming IPO.
According to filings, the firm has promised to pay investors who invested in its Pre-D and D+ rounds of funding a guaranteed payout equal to an annual return of 8%, or $1.1 billion total.
This payment is calculated from the date they bought up to March 4, 2026. It will be paid in three equal payments by cash due at the end of June, March and September 2026.
Investors are protected if the company is listed at a lower price than they paid.
Investors who own preferred shares will automatically be converted into regular Class B Shares upon listing. Their conversion price is then lowered so that they receive more shares as compensation.
Shein didn't immediately respond to an inquiry for comment?on the cash-and-share offer plans.
Investors will be looking to see if Shein can justify its $40-$50 billion valuation in an IPO in Hong Kong. The filings on the exchange revealed a slowing of growth, a sharp decline in profits, and a rise in regulatory and legal uncertainty. Reporting by Anjali Sing in Bengaluru, Selena Li and Yantoultra NGi in Sigapore and Nivedita Battacharjee in Singapore; Editing and proofreading by Nivedita Battacharjee & Louise Heavens
(source: Reuters)