TotalEnergies NYSE:TTE, a French energy major, expects its oil-trading earnings to remain at the same strong level recorded in the first quarter after the Iran war disrupted crude markets and reduced supplies through the Strait of Hormuz. The market upheaval pushed crude prices to their highest level since Russia's 2022 invasion of Ukraine, creating stronger trading conditions for TotalEnergies and other large Western oil companies ahead of earnings reports later this month. However, the company expects earnings from its integrated liquefied natural gas business, which represents roughly one-fifth of its overall results, to fall significantly because of weak conditions in the European gas market.
The weaker LNG outlook appeared to concern investors more than the strong oil-trading performance, with TotalEnergies shares falling as much as 2.5% on Thursday before recovering part of the decline. The stock underperformed BP NYSE:BP, a major European energy company, and Shell, a global oil and gas producer, during early trading. European 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. This has left European gas inventories well below normal seasonal levels ahead of winter, although Jefferies, a financial-services firm whose analysts commented on the results, expects stronger downstream and other operations to offset the weaker integrated LNG performance.
TotalEnergies 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. The company also expects exploration and production earnings to increase, even after the Iran conflict reduced output by approximately 210,000 barrels of oil equivalent per day, below the impact indicated in its previous-quarter guidance. Cash flow from the integrated power business is 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. These stronger contributions could help balance the pressure from LNG when TotalEnergies publishes its full earnings statement in one week.