BP's refining profit triples, weaker margins ahead

LONDON (Reuters) - BP tripled second-quarter profit from refining and marketing operations due to strong margins and record high petrochemical sales, which also may help earnings figures from other major oil companies later this week.

The British oil company on Tuesday reported $2.075 billion (1.3 billion pounds) in replacement-cost profit before interest and tax for April to June, compared with $680 million in the second quarter of 2009 and $729 million in January-March this year.

Its refining profit was wiped out, however, by a $32.2 billion charge for the oil spill in the U.S. Gulf of Mexico. Overall BP posted a loss of $17 billion in the second quarter and confirmed that Tony Hayward would be replaced by Bob Dudley as chief executive.

The refining operation benefited from recovery in international refining margins and demand for petrochemical products in China.

"If you look at the margin against the profit ... it is true that it was probably the strongest outcome since about 2000, so it was a strong quarter," said Iain Conn, chief executive of BP's refining and marketing, at an analyst conference.

BP's global indicator margins have recovered to $5.49 a barrel from a 15-year low of about $1.49 hit in the fourth quarter of 2009.

"In the international businesses, the petrochemicals business was able to capture the benefit of demand recovery, particularly in China, through high reliability and record sales volumes," BP said in a statement.

Its U.S. refining operations returned to a profit of $757 million in the second quarter from losses in the first quarter and a year earlier.

BP was the first oil major to report second-quarter earnings. Refining margins are also likely to boost quarterly profits of companies such as Exxon Mobil Corp, which will report earnings later this week.

CAUTION AHEAD

BP has sold some refining assets over about the past 10 years including in the UK to focus on those refining operations the company describes as high-quality and more profitable.

But Conn said refining margins were likely to make a seasonal decline in the third quarter. Margins often dip during the transition in the northern hemisphere between peak summer demand for auto fuels and the winter heating season.

"The second quarter tends to be the strongest in a year, so we are seeing margins come off a bit. I am not sure whether this is going to be repeated," he said.

BP also said the contribution from trading in the refining and marketing figures was weaker in the second quarter compared with a "particularly strong condition" a year earlier.

Although the company did not detail why the trading conditions were weak, narrower contango in the oil market -- or premiums on longer-dated contracts versus prompt prices -- has reduced the opportunities for many oil companies and traders to profit by storing oil now and selling it later.

Also limited moves in price spreads between regions, such as the United States, Asia and Europe, have also capped physical arbitrage trading opportunities this year.

(Reporting by Ikuko Kurahone; Graphic by Scot Barber; Editing by Mike Nesbit and Jane Baird)