For the second time this decade, a war has upended global oil markets and sent oil prices and refining margins to multi-year highs, benefitting the world’s biggest oil companies and top refiners.
The war in Iran has tightened fuel supply as crude oil has struggled to move through the Strait of Hormuz, triggering reduced refining throughput in Asia and a temporary Chinese ban on exports. The fuel markets tightened even more than the crude market to send refining margins to record highs.
And the biggest refiners benefited from the new refining boom, with Big Oil reporting their highest second-quarter earnings since the previous outbreak of a war, the Russian invasion of Ukraine in 2022. The bumper earnings were driven not only by the jump in oil prices between April and June—the contribution of the refining and trading divisions was also fundamental for fueling the high profits.
Record Refining Margins
Despite the slump in crude prices and the extreme volatility in the past five months, the refined product market continues to tighten with refining margins at record highs because the supply of petroleum products is much tighter than crude supply.
Refining margins held at record highs even as crude oil prices soared to $100 per barrel and above. That’s because global gasoline, diesel, and jet fuel supply is tightening and has been tightening for months amid a combination of factors, most stemming from the wars in Iran and Ukraine.
Last month, refining margins for gasoline and diesel jumped to new record highs amid on-and-off escalation in the Middle East, Russia’s ban on diesel exports, and crumbling global fuel inventories.
In a rare statement last month, Fatih Birol, the executive director of the International Energy Agency (IEA), said that “There is no room for complacency on oil security amid the escalation in hostilities and a continued drawdown of available commercial inventories.”
While assuring markets that IEA countries still hold more than 1 billion barrels of government-controlled stocks, Birol said that “Refinery activity and product supplies have not picked up as much as crude deliveries, meaning that markets for refined oil products, including diesel and gasoline, are considerably tighter than those for crude.”
Big Oil’s Bumper Profits
As a result of the tight fuel markets and soaring refining margins, the world’s biggest international oil companies reported their strongest earnings for the second quarter since at least 2022. They also expect refining to continue providing high earnings in the short term amid distorted fuel markets with restricted supply and refining capacity.
Shell, for example, more than doubled its second-quarter earnings from a year earlier, as higher oil and gas prices, record refinery utilization, and strong trading boosted profits to above analyst expectations.
Related: US Crude Oil Inventories Build As Washington Talks Up Potential Peace Deal
Refinery utilization at Shell was 102% in April to June, compared with 99% in the first quarter of 2026, mainly due to lower planned and unplanned maintenance activities. Strong refining and chemical margins also boosted Shell’s earnings in the past quarter.
Shell’s global indicative refining margin rose to $24 from $17 per barrel in the first quarter, while the global indicative chemical margin doubled to $270 per ton, from $139 per ton.
“The operational performance of Refining has been excellent,” CEO Wael Sawan said on Shell’s earnings call.
TotalEnergies’ adjusted net income jumped by 68% from a year earlier to $6 billion for the second quarter of 2026 as the jump in oil prices and refining margins boosted earnings and cash flows.
The European Refining Margin Marker for the supermajor rose by 19% quarter-to-quarter and soared nearly threefold year-to-date compared to the first half of 2025, to $12.4 per barrel, up from $4.3 a barrel.
“Refining and Chemicals performed in an exceptional way leveraging market conditions, managing well the tensions on supply of refined products to maximize captured margins,” TotalEnergies CEO Patrick Pouyanné said on the earnings call.
The U.S. supermajors, ExxonMobil and Chevron, also reported their highest earnings in years, drawing criticism from U.S. President Donald Trump, who this week said they are making “too much money” and “They’re going to give some of that back to the public and they better cut the retail price, the consumer price.”
Chevron had record refinery throughput of over 1 million barrels per day for the second quarter, CEO Mike Wirth said on the earnings call on Friday.
“Middle distillates are really the tight spot right now. Initially, it looked like jet, now diesel,” the executive noted, saying that European diesel demand could soon start rising from relatively weak levels in Q2 amid restocking of heating oil ahead of winter.
“That lands on top of the export ban from Russia, refinery outages in Russia, the obvious constraints that exist in the Strait,” Wirth added.
China and its demand is a big unknown for the market now, but Chevron doesn’t see a significant scale of demand destruction, said the executive, adding “I think we’re going to see some upward pressure on product pricing here into the third quarter and perhaps beyond that.”
Exxon’s CEO Darren Woods said the supermajor expects continued “very robust refining market with very high margins.”
Even if supply disruptions are resolved by the end of the year and crude and fuels flows from the Middle East are restored, low global inventories and the need to restock could support the global refining complex for a few more quarters.
By Tsvetana Paraskova for Oilprice.com
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