Repsol sees refining margins staying high next year amid geopolitical turmoil
Repsol's Financial Performance and Market Outlook
By David Latona
MADRID, July 23 (Reuters) - Spanish energy group Repsol expects refining margins to stay high next year as geopolitical tensions around the Gulf region and Russia persist, it said on Thursday, after reporting that its second-quarter profit tripled on stronger margins and oil prices.
Supply constraints linked to intermittent disruptions in the Strait of Hormuz and Ukrainian attacks on Russian refineries have fuelled price volatility and pushed up margins for European refiners.
Factors Supporting High Refining Margins
"I'm convinced there are solid reasons to support really good refining margins - not only in 2026, but also in 2027," Repsol CEO Josu Jon Imaz told analysts.
Geopolitical Risks and Supply Constraints
He cited outages at Russian refineries as an equivalent or even greater risk factor than Hormuz for the European middle distillates market, as they affected 45%-50% of Russia's refining capacity.
Market Demand and Inventory Levels
Imaz also pointed to resilient global fuel demand, strong consumption in Spain and Portugal, low inventories in major markets and the need for refinery maintenance underpinning his positive outlook on margins.
Contingency Plans for Hormuz Crisis
If the Hormuz crisis were to worsen, Repsol had enough crude, storage and production capacity to cover all of Spain's kerosene needs, Imaz said, adding that the company could even have an excess of 30% of its production available to supply other customers if those companies' providers run out of jet fuel.
Shares in Repsol were up 3.6% at 1340 GMT, bucking a 1.3% drop in Spain's blue-chip index <.IBEX>, after its results beat expectations.
Production and Shareholder Returns
Production Ramp-Up
PRODUCTION RAMP-UP
Repsol's adjusted net income rose to €1.84 billion ($2.1 billion) between April-June, compared to the €598 million posted in the second quarter of 2025, beating analysts' consensus forecast of €1.64 billion.
Growth Drivers for Production
Imaz said the company expected production to reach around 600,000 barrels of oil equivalent per day by the end of 2026, helped by a ramp-up of the Pikka project in Alaska by the end of September, improvements in Venezuela, growth in the Marcellus Shale and higher output from the Leon-Castile fields.
October Buyback and Shareholder Distributions
OCTOBER BUYBACK
Spain's main refiner and oil producer will launch a third share buyback in October and keep total shareholder distributions within its 30%-40% cash-flow-from-operations target, it said.
Imaz said the size of the October buyback would be decided then, based on macro conditions and visibility on full-year performance. The company increased its second 2026 share buyback to €500 million, in addition to the €350 million programme already completed.
Alternative Shareholder-Return Mechanisms
He said Repsol wasn't planning any alternative shareholder-return mechanisms such as special dividends and ruled out a listing of its upstream business in the United States this year.
Net Debt and Financial Position
Net debt by the end of June fell to €3.67 billion from €4.8 billion euros at the end of March, helped by strong cash generation and the deconsolidation of debt linked to the sale of a Spanish renewables portfolio.
($1 = 0.8749 euros)
(Reporting by David Latona; Additional reporting by Emma Pinedo; Editing by Jesús Aguado, Kim Coghill and Susan Fenton)