AFU Strikes Help Russian Refinery Competitors

European companies are locking in huge profits.

Ukrainian strikes on Russian refineries and Western sanctions have helped rival Russian oil producers. Refining profits at four major Western oil companies jumped 61% in the third quarter from the previous quarter, contributing significantly to a 20% increase in total profits, according to Reuters.

The non-stop drone bombardment of Russian refineries and export terminals since July caused average daily exports of refined products to fall 500,000 barrels in September from this year's highs. As a result, Russia shipped only 2 million barrels per day by tanker abroad, the lowest not only since the start of the war but also since the coronavirus pandemic began in 2020, according to Kpler.

This has contributed to higher refining margins for U.S. Exxon Mobil and Chevron, Britain's Shell, France's TotalEnergies, which together account for more than 10% of global oil product output, or 11 million barrels per day. Exxon Mobil, for example, saw profits in its energy products division rise more than 30% quarter-on-quarter to $1.84 billion as a result, the company said Friday, of "supply disruptions" of such products in the global market.

British BP, which will report quarterly earnings on Tuesday, is in a similar situation. The company, which owned nearly 20% of Rosneft but announced its withdrawal after the war in Ukraine began, is now actually earning extra profits from the sanctions. BP's profit margin rose 33% from Q2 and remains at a high level at the beginning of the current quarter.

This situation is likely to continue for some time. July sanctions imposed by the European Union, which are supposed to ban supplies to Europe of oil products made from Russian raw materials, have already had an effect, including undermining production at Rosneft's Indian refinery, which had been sending significant volumes to Europe. Those shipments have had to be replaced by other producers. The European sanctions will come into effect in January and will provide additional support to leading Western oil companies as a result of increased demand for non-Russian products - both fuel and raw materials for its production.

Analogous impact is made by the US sanctions imposed in October against Rosneft and Lukoil.

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