Big Oil record cash windfalls from US-Iran war

According to Reuters, Big Oil is reaping near record cash windfalls from the eight-month-old Iran war, but Western energy producers’ reluctance to ramp up spending reveals persistent doubts about the industry’s long-term outlook.

BP, Chevron, Exxon Mobil, Shell and TotalEnergies reported combined net profits of US$56 billion in the third quarter, driven by surging oil and gas prices, record-high refining margins and ​strong trading results.

BP posted its highest quarterly profit ever, US$8.5 billion, as earnings from its refining business rose tenfold from a year earlier. For the other majors, the quarter was generally their ‌second-strongest on record, behind only the extraordinary gains booked following Russia's invasion of Ukraine in February 2022.

Market conditions remain incredibly favourable. Brent crude has surged around 60% to US$114 a barrel since the start of the Iran conflict on February 28, while benchmark European natural gas prices have climbed to their highest levels since late 2022. Diesel prices, meanwhile, remain close to September's all-time high above US$200 per barrel as fuel markets continue to grapple with refinery outages and disrupted trade flows.

Big Oil has so far shied away from ​major new spending, suggesting the majors do not see today's market conditions as evidence that the industry's long-term outlook has improved.

Entering the year, the energy industry had been bracing for a ​looming supply glut. Many companies were cutting spending plans, freezing hiring and intensifying cost-saving programs amid expectations that a flood of new oil and liquefied natural gas (LNG) ⁠supplies would pressure prices later in the decade.

The joint US-Israeli strikes on Iran in February and the prolonged closure of the Strait of Hormuz upended the short-term supply picture, as exports from the Gulf ground to a ​halt and refining capacity shrank.

However, energy companies have so far maintained their conservative approach, directing excess cash mostly to strengthening balance sheets and repurchasing shares.

The majors’ combined net debt fell to US$117 billion in the third quarter from US$204 ​billion in the first quarter.

BP, which entered the conflict carrying one of the highest debt burdens among its peers, nearly halved net debt to US$13.9 billion from a year earlier. The company will continue to focus on debt reduction, its CEO said.

Share buybacks also rose to US$12.3 billion in the third quarter, little changed from the previous quarter. Shell and TotalEnergies announced sharp increases in buybacks over the next three months, while Exxon said it planned to buy back US$20 billion of shares in 2027, a similar ​level to this year.

While debt reduction and share repurchases can be dialled up or down from one quarter to the next, capital spending and dividends are longer-term commitments that are much harder to ​reverse if market conditions deteriorate.

So it is telling that the majors' dividend policies and capital spending plans have remained largely unchanged since the start of the war.

Shell, for example, reduced its 2026 capital spending guidance by US$1 billion to US$23 billion to US$25 ‌billion despite the ⁠sharp improvement in commodity prices.

Chevron expects 2026 spending to remain at the lower end of its US$18 billion to US$19 billion guided range.

The extreme volatility and uncertain outlook have also curbed companies' appetite for large acquisitions, as buyers and sellers struggle to agree on fair valuations for assets.

The main exception has been North American natural gas, where abundant supplies and relatively predictable pricing have made it easier to strike deals.

Shell's U$16.4 billion acquisition of Canada's ARC Resources in April reflected growing confidence in the continent's expanding LNG export sector and long-term gas demand prospects.

TotalEnergies has also indicated interest in deals that would help raise its US gas production by around 1 billion cubic feet ​per day, although CEO Patrick Pouyanne said oil assets ​remained too expensive at current valuations.

Boards will review ⁠2027 spending plans before year-end, when companies could decide to increase shareholder distributions or accelerate investment. But all signs so far indicate that any changes will mostly involve returning more capital to shareholders.

What stands out in this bumper earnings season is that energy industry executives appear unwilling to treat today's elevated prices as the start ​of a new supercycle.

The experience of the past decade, from the 2014 oil price collapse to the pandemic crash and the post-Ukraine boom, has reinforced a preference ​for financial discipline over production ⁠growth.

That is understandable, particularly because the concerns driving the industry’s long-term uncertainty – namely the speed and shape of the energy transition, particularly in Asia – have not improved and may have got worse.

The wars in Ukraine and the Middle East have highlighted the risk of being overly dependent on imported fossil fuels. This could spur stockpiling, but it could also encourage countries to pursue more domestic energy production, from both traditional and alternative fuel sources.

There are ⁠growing signs that ​oil and gas markets could remain tight, helping to generate heftier profits for the energy majors. Over the longer term, ​geopolitical fracture and energy nationalism appear set to usher in a new era of greater energy market volatility.

 

QatarEnergy keen in acquiring 30% stake in Lebanon offshore gas project

State-owned QatarEnergy is in talks with the Lebanese government to take a 30% stake in an offshore exploration block and is also negotiating with TotalEnergies and ENI on this matter, CEO Saad al-Kaabi confirmed on Sunday.

According to Reuters, TotalEnergies and the Lebanese government have reached a deal handing the French oil major temporary majority control of the block and paving the way for negotiations with Qatar over a stake in the gas project.

"We are in the process of discussing that with the government of Lebanon and the partners, Total and ENI for a participation of around 30% ownership of that exploration block," Kaabi said.

"In due course when we get that basically finalized as an agreement, and we sign that agreement, we will announce it."

The initial exploration license was held by a three-part consortium of TotalEnergies, Italy's Eni and Novatek. Beirut announced in September that Novatek, which held a 20% stake, would exit.

Lebanon's cabinet issued an unpublished decision on October 21, assigning Novatek's stake to a firm called Daja 216 and transferring TotalEnergies's 40% stake to another company, Daja 215. It is believed that Daja 215 and Daja 216 were TotalEnergies vehicles.

The sources had said that the understanding between TotalEnergies and Lebanon was that the French group would enter negotiations with QatarEnergy over the former Novatek stake. Qatar was seeking a 30% stake, comprised of Novatek's former stake and a 5% stake from each of TotalEnergies and Eni.

Offshore areas in the eastern Mediterranean and Levant have yielded major gas discoveries in the past decade. Interest in them has grown since Russia's invasion of Ukraine disrupted gas supplies.

 

Rising diesel exports to Europe

Oil traders are ramping up diesel exports from Asia and the Middle East to Europe in October to profit from a wide price gap between the regions as weeks-long strikes at French refineries have tightened stocks, although a steep backwardation may cap volumes, according to trade sources and shipping data.

The price spread between front-month Singapore 10 ppm sulphur gasoil swaps and the ICE low sulphur gasoil futures contract, also known as exchange of futures for swaps (EFS) , was close to minus US$150 a ton on Wednesday, versus minus US$29 a year ago, data on Refinitiv Eikon showed, making it attractive for traders to send oil to Europe.

"East of Suez is sending everything they can ship... it's just a question of how much China exports in November," a Europe-based trader said.

For October, around 289,000 tons of gasoil will be loaded from South Korea and China to northwest Europe, up from 137,500 tons in September, ship tracking data from Refinitiv showed.

Exports from India and the Middle East for October to northwest Europe were at around 480,000 tons and 834,000 tons respectively, as compared to 361,000 tons and 511,310 tons a month ago, the data showed.

The trader estimated that Europe may import about 3 million tons (750,000-850,000 barrels per day) from east of Suez in November, of which the Middle East could account for two-third of the volume. Traders expect the bulk of supplies to Europe to come from India and the Middle East, on shorter shipping times.

Asia's top fuel exporters in South Korea and Taiwan have issued a flurry of spot tenders this month, while China will also step up diesel exports after Beijing increased allocation.

However, outages at TotalEnergies' refineries in France caused by worker strikes since September have led prompt diesel prices to surge versus those in future months, a market structure known as backwardation, posing risks to the value of oil cargoes that travel over long distance such as from Asia to Europe.

Steep backwardation, which is already deterring traders from storing diesel globally, may prevent the much-needed heating fuel from reaching Europe this winter as the region is scaling back on imports from top supplier Russia ahead of a European Union embargo in February.

"Some end consumers were stockpiling Russian diesel but now with French strikes, the market has tightened up and we have brutal backwardation," a Europe-based trader said.

"So there is a big commercial incentive to draw stocks, which will make it worse to buy diesel."

Northwest European diesel barge profit margins rose to over US$83 a barrel on Tuesday, a record high, amid supply tightness.

Already soaring diesel prices in the United States have led traders to divert several cargoes heading from the Middle East to Europe to the New York harbour area, further constraining supplies in Europe.

"European gasoil cracks could come down even further up to US$15 a barrel once the strikes end, making it risky for Asian barrels to head over here even on a prompt loading basis given the strong backwardation, although the arbitrage is technically open on paper," said Mark Williams, a research director at Wood Mackenzie.