Introduction
Second quarter results season for the oil majors has just closed, and the profit numbers are large. Shell, BP and TotalEnergies each reported a sharp increase on the previous three months. Less widely reported is where a good part of that money came from. It was not simply the price of crude oil. It was the gap between the price of crude and the price of the fuels refined from it.
That gap is the refining margin, and in 2026 it has been unusually wide. For UK investors this matters for two reasons. Shell and BP sit among the largest companies in the FTSE 100, so almost anyone holding a UK index fund owns a slice of both. And the same shortage of diesel and petrol that lifted those profits shows up every week at the pump.
The information provided on this page and throughout the website is for general information purposes only and does not constitute financial advice. Investments can fall as well as rise in value and you may get back less than you put in. Past performance is not a guide to future returns. It is important that you conduct your own research and consider your own personal circumstances before making any investment decisions.
What Actually Happened
Two things moved in opposite directions this year, which is what makes the picture unusual.
Crude oil supply was disrupted and then partly restored. Flows through the Strait of Hormuz were interrupted, producers in the region shut in barrels, and crude prices spiked. By June, Middle East crude exports had recovered to more than 12 million barrels a day, up from under 8 million in May, and Brent fell back towards its pre-conflict level.
Refined fuel supply did not recover in step. Refinery runs in Asia were cut, Russia restricted diesel exports, and commercial fuel stocks kept draining. The International Energy Agency addressed this directly in a statement from its executive director, Fatih Birol, who said markets for refined products including diesel and gasoline are “considerably tighter than those for crude”.
The result is a market where crude eased while fuel did not, and the spread between the two widened to record levels.
How a Refining Margin Actually Works
A refinery buys crude oil and sells petrol, diesel, jet fuel and other products. Its margin is the difference between what it pays for a barrel and what it receives for the fuels made from that barrel, less the cost of processing. Traders often call this spread the crack spread, because refining cracks a barrel into its component fuels.
This is why a refiner can prosper in a falling oil market. A refining business is not primarily a bet on the oil price. It is a bet on the gap. When crude gets cheaper while diesel stays scarce, the gap widens and the refiner keeps more of it.
The reverse holds too, and it is worth remembering. When new refining capacity comes online, or when fuel demand softens, margins compress quickly. A business that looks exceptional in one quarter can look ordinary two quarters later.
What the Squeeze Looks Like at the Pump
UK pump prices show the effect clearly. Diesel normally costs a few pence more per litre than petrol. In early January 2026 that premium was about 9p. By mid April it had reached almost 34p. In the week beginning 3 August it stood at just over 19p.
The chart shows both fuels climbing through the spring, diesel far more steeply, then diesel falling back faster in early summer before turning up again in late July. Petrol averaged 159.9p a litre and diesel 179.2p in the week beginning 3 August, on Department for Energy Security and Net Zero figures. The widening and narrowing of the gap between those two lines is the refining margin story, visible at forecourt level.
Where the Profits Showed Up
All three European majors reported materially higher profits for the three months to June, and each pointed to refining as a driver.
Second quarter 2026 results, three European majors
| Company | Q2 2026 profit measure | Previous quarter | Refining margin indicator |
|---|---|---|---|
| Shell | $9.84bn adjusted earnings | $6.92bn | $24 a barrel, up from $17 |
| BP | $5.7bn underlying replacement cost profit | $3.2bn | Stronger realised refining margins reported |
| TotalEnergies | $6.03bn adjusted net income | $5.39bn | $13.50 a barrel, up from $11.40 |
Source: company second quarter 2026 results releases. The three companies report different profit measures and different refining margin indicators, so the columns are not directly comparable.
Shell’s result was its strongest quarter since 2022, helped by refinery utilisation of 102%, meaning its plants ran above nameplate capacity because less maintenance was scheduled. BP’s underlying replacement cost profit rose to $5.7 billion from $3.2 billion in the first quarter, with stronger realised refining margins named among the reasons. TotalEnergies lifted adjusted net income to roughly $6 billion, up 68% on the same quarter a year earlier.
The Exposure You Probably Already Have
You do not need to own an oil company directly for any of this to reach your portfolio. If you hold a FTSE 100 tracker inside a stocks and shares ISA or a SIPP, you already own Shell and BP in proportion to their size in the index. At the end of June 2026, Shell made up around 6.6% of the iShares Core FTSE 100 ETF and BP around 2.9%. Together that is close to a tenth of the fund.
Global trackers give you smaller but comparable exposure, alongside ExxonMobil and Chevron. A fund following a world index will typically hold all four, sized by market value.
The practical point is that a quarter like this one flows into your returns whether or not you followed the news. That is one of the quieter advantages of a broad index fund: you were not required to forecast a diesel shortage in order to participate in its effects. If you are still choosing where to hold that kind of fund, our broker matching tool and UK broker fees calculator are a sensible place to start, and our Vanguard UK review covers one of the common routes into index tracking.
Concentration Cuts Both Ways
The same figures that look pleasant this quarter also describe a real risk. A UK index with close to a tenth of its value in two oil companies is concentrated by international standards, and energy earnings are among the most cyclical in the market. The conditions that produced record refining margins were disruption, restricted exports and depleted stocks. None of those is permanent.
Refining margins have historically reverted towards their average, sometimes quickly. The TotalEnergies European refining margin indicator stood at about $4.70 a barrel a year ago against roughly $13.50 in the second quarter of 2026. A move of that size in the other direction is entirely ordinary for this industry.
None of that is an argument for or against holding energy shares. It is an argument for knowing what you hold, and for not treating one unusually good quarter as a new baseline. A compound interest calculator is a useful corrective here, because it shows how much long run outcomes depend on steady contributions rather than on any single year.
What to Watch Next
Three things will tell you whether the squeeze is easing.
First, diesel inventories. European buyers typically restock heating oil before winter, which adds demand at a time when stocks are already low. Watch whether the drawdown reverses in the autumn.
Second, the Strait of Hormuz. Crude flows have partly resumed, but the constraint that reduced refinery runs in Asia has not fully lifted. A durable resolution would let refined product supply normalise.
Third, the next set of results. Refining contributed materially to all three companies in the second quarter. The third quarter figures, due in late October and early November, will show whether that has held.
Key Takeaways
Refining margins, not crude, drove the profits
The spread between crude and refined fuel prices widened to record levels in 2026 because fuel supply stayed tighter than crude supply.
Three majors reported sharply higher quarters
Shell posted $9.84bn in adjusted earnings, BP $5.7bn in underlying replacement cost profit and TotalEnergies $6.03bn in adjusted net income for the second quarter.
UK index funds already hold this exposure
Shell was roughly 6.6% and BP roughly 2.9% of the iShares Core FTSE 100 ETF at the end of June 2026, close to a tenth of the fund between them.
The pump tells the same story
The diesel premium over petrol widened from about 9p a litre in January to almost 34p in mid April, and stood at just over 19p in early August.
Cyclical works in both directions
The TotalEnergies European refining margin indicator was about $4.70 a barrel a year ago against roughly $13.50 in the second quarter. Margins can compress as fast as they expanded.
Figures in this article were checked against reporting of the Shell second quarter 2026 results, BP quarterly results, the TotalEnergies second quarter 2026 results release, the IEA Executive Director statement on oil markets, and Department for Energy Security and Net Zero weekly road fuel prices. Index weightings are as at 30 June 2026 and change over time. Company figures are as reported and use different profit measures, so they are not directly comparable.
The information provided on this page and throughout the website is for general information purposes only and does not constitute financial advice. Investments can fall as well as rise in value and you may get back less than you put in. Past performance is not a guide to future returns. It is important that you conduct your own research and consider your own personal circumstances before making any investment decisions.
