TotalEnergies expects its oil-trading earnings to hold at the strong first-quarter level after the Iran war disrupted crude supplies, yet its shares still fell as much as 2.5% on Thursday. Investors focused instead on a sharp expected drop in the company's integrated LNG earnings, hit by a weak European gas market.
TotalEnergies shares fell as much as 2.5% on Thursday before recovering part of the decline, even as the French energy major told the market its oil-trading earnings should stay at the strong level recorded in the first quarter. What worried investors was elsewhere: the company expects earnings from its integrated liquefied natural gas business, which represents roughly one-fifth of its overall results, to fall significantly.
Why oil trading stayed strong
The Iran war disrupted crude markets and reduced supplies through the Strait of Hormuz, and that upheaval pushed crude prices to their highest level since Russia's 2022 invasion of Ukraine. Those conditions created stronger oil trading conditions for TotalEnergies and other large Western oil companies ahead of earnings reports later this month.
The company expects earnings and cash flow from its downstream business to rise sharply as disruptions in the Middle East and Russia tightened fuel supplies and strengthened refining margins, despite some refining capacity being offline because of heat and maintenance. It also expects exploration and production earnings to increase, even after the Iran conflict cut output by approximately 210,000 barrels of oil equivalent per day.
The LNG drag
Yet the weaker LNG outlook appeared to concern investors more than the strong oil-trading performance. The stock underperformed BP and Shell during early trading on Thursday. European natural gas trading activity has slowed as heightened volatility kept many market participants on the sidelines, while disruptions to LNG shipments through the Persian Gulf lifted prices enough to discourage utilities from replenishing storage.
As a result, European gas inventories sit well below normal seasonal levels ahead of winter. Even so, Jefferies analysts expect stronger downstream and other operations to offset the weaker integrated LNG performance. Cash flow from the integrated power business is also expected to increase strongly following an April transaction involving EPH, an energy company associated with Daniel Kretinsky and a large portfolio of gas-fired power plants in Western Europe. TotalEnergies publishes its full earnings statement in one week.
Source: TradingView
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