The five oil majors reported combined net income of more than $50 billion in the third quarter, as global gasoline, diesel and jet fuel prices remained near record highs. Yet the companies are directing much of their windfall toward shareholders and debt reduction rather than committing to new refineries, despite calls from political leaders to expand Western refining capacity.

Shell raised its share buyback plan to $5 billion for the current quarter, while ExxonMobil announced another $20 billion buyback program for 2027. BP is using much of its exceptional profit to reduce debt.

Refining divisions helped drive the earnings, running close to full capacity to benefit from higher prices and make up for tight supply after the war in Iran disrupted shipments through the Strait of Hormuz. Around 10% of global refining capacity has been offline this year following the start of the war and Ukrainian attacks on Russian refineries. Export restrictions imposed by China and Russia have further tightened the market.

Industry executives expect the conditions behind higher refining margins to persist for some time. The International Energy Agency has forecast that diesel shortages will continue through 2027. US President Donald Trump urged companies to strengthen domestic refining supply chains and brought oil executives to the White House in September to discuss ways to lower fuel prices. G7 and European Union leaders have also called for more investment to improve energy security.

Major oil companies have made smaller investments in existing refineries to increase output and utilization, but have avoided costly new facilities that would take years to become operational. Morningstar analyst Allen Good said falling future fuel demand made a new refinery in Europe or the United States unlikely, adding that current margins were not considered sustainable. BP chief executive Meg O’Neill said the company did not plan to sell more refineries after its sale of the Gelsenkirchen facility in Germany this year, but would not expand capacity “at this time.”

Smaller US refiners are also cautious about major projects. Phillips 66 said it was directing most of its investment toward midstream assets used to store and transport refined products. The company has made more limited improvements at its facilities, which executive Brian Mandell described as investments worth tens or hundreds of millions of dollars that can gradually increase capacity and utilization, rather than transformative projects costing several billion.

Valero took a different step on Friday, buying an inactive refinery in Houston from LyondellBasell for $320.5 million. It said it plans to restart capacity to process 165,000 barrels a day of light, low-sulfur crude by the end of 2027, with the aim of processing heavier crude later.

While refining capacity has declined in the United States and Europe, investment has continued elsewhere. Since 2019, China and the Middle East have added 4.4 million barrels a day of capacity, while Europe and North America have lost 2.1 million, according to the Federal Reserve Bank of Dallas. New refineries have also recently opened in Nigeria, India and Mexico.

Rabobank senior energy strategist Joe DeLaura forecast Brent crude would average $120 a barrel in the first half of next year, with diesel refining margins, or crack spreads, at around $100 a barrel over the same period. He warned that a further escalation of hostilities in the Middle East could raise oil prices and refining margins, adding to global inflation. DeLaura said energy infrastructure could face attacks on a much larger scale, pushing up diesel and gasoline crack spreads as well as crude prices.

Sources: Folha Mercado.