Furious motorists faced with high pump prices have accused oil majors of profiteering, but as the firms announced bumper profits this week, they said they were making little gasoline sales.
BP and Shell argued the gains from record oil and gas prices should not be used to protect
consumers in a highly competitive market and instead helped to compensate for the difficulty of making money from refining and sales.
"Good operating performance, combined with increased oil and gas prices, offset the impact of weaker downstream conditions," said Shell's CEO Jeroen van de Veer, after announcing a 5 percent rise in second-quarter profits on Thursday.
Fending off calls for a windfall tax on their earnings, the majors have said retail pump prices are the result of high levels of duty in Britain and elsewhere in Europe.
At the same time, the soaring cost of unrefined crude has squeezed any gains they could have made from turning it into gasoline.
"We make very little per litre. In Britain we aim for a penny but sometimes we don't even make that," said Robert Wine, a spokesman for BP . (Some analysts believe oil could reach the $135 level. See the accompanying video for more...)
Petrol prices in Britain rose to as high as $237.3 a litre in mid-July, of which 57 percent was tax. They have since come down as crude has fallen by around $20 a barrel from its $147.27 peak and as cut-throat competition between supermarkets selling gasoline has further eroded potential profits.
Shell on Thursday reported second-quarter refining earnings falling to $1 billion, from nearly $3 billion a year ago.
On Tuesday, BP said its second-quarter refining profits slid to $539 million from $2.7 billion for the same period last year, following significantly lower refining margins, especially in the United States.
Summer Gasoline Slump
For oil refineries, the peak summer driving season is usually a time for their biggest gasoline profits.
But this year's record pump prices have forced European and U.S. motorists to curb their driving, especially as they coincide with rising utility bills and higher food costs.
"People have said they can't afford to go to work, can't afford to travel," said Paul Rodgers, general manager of Thornton's gas station in Sharonville, Ohio.
U.S. gasoline prices fell to below $4 a gallon this week for the first time in two months after a fall in crude oil prices, which account for 75 percent of U.S. gasoline costs.
U.S. gasoline is much cheaper than in Europe because it is taxed at a much lower rate.
While gasoline retail prices have soared, the slump in demand means they have risen more slowly than crude, hitting refining profits.
In the United States, gasoline refining profits -- or crack spreads -- are around $5 a barrel, down from a peak of $27 hit last July.
"The crack spreads in the U.S. are well below the seasonal average," said Stephen Brooks, an analyst at Wood Mackenzie. "The high prices are having an impact on demand."
European refineries, which have seen gasoline exports to the U.S. slump and local demand fall sharply as motorists switch to more efficient diesel cars, are making losses on their gasoline production.
Diesel, Jet Boost Profits
Faced with the weak gasoline market, refineries are ramping up their production of diesel and jet fuel, which remain very profitable because of strong demand and low stocks.
Profits for these fuels are about three times last year's levels.
Apart from its use for transport, diesel demand has been boosted by increased use of the fuel for power generation in Africa, the Middle East and Latin America.
But even diesel profit margins might not be here to stay if the global economic slowdown makes consumers travel less.
"Demand for diesel and aviation fuel has grown ... although with the credit crunch and current economic crisis we could expect demand for travel to ease," said Brooks.