* 2014 European refining margins up 70 pct on year
* Companies face heavy drop in revenue with lower oil prices
* http://link.reuters.com/kak63w
By Ron Bousso and Libby George
LONDON, Dec 10 (Reuters) - The pain of the drop in crudeprices for Europe's oil companies will be partly offset by a 70percent jump in refining profits - an unexpected move thatbucked the trend of the grim refining sector.
That will not be enough to stave off for much longer sellingrefining assets, but analysts said the exceptional gains willsupport major oil companies that are grappling with a more than40 percent plunge in crude oil prices since June.
"Margins have been much higher than we expected," said WoodMackenzie analyst Jonathan Leitch. "They are on the five-yearaverage - and that average includes some pretty good years.We're talking about a $4-5 margin increases year on year."
Processing crude oil into as gasoline, diesel and jet fuelin recent years has weighed heavily on European oil companies,prompting painful refinery closures and restructures.
Cheaper crude has revitalised those profit margins, even aswider revenues have rapidly shrunk with oil prices that havedropped to around $65 a barrel.
According to oil brokerage Jefferies, Shell's oilproducts adjusted net income in 2014 is set to rise by 56percent to $4.18 billion. Profits from BP's 2014downstream division are expected to rise by 23 percent to $4.73billion. Total's full year 2014 downstream is expectedto post a 35 percent rise from a year earlier at $2.38 billion.
WoodMackenzie's benchmark catalytic cracking margins arerunning at $3.10 for the fourth quarter, compared with negative$1.10 a barrel during the fourth quarter last year.
The decline in oil prices has also sharply lowered energybills for European refineries, which typically use 5 to 10percent of their crude just to power the plants, according toBarclays analyst Lydia Rainforth.
"There is actually a sustainable improvement in theprofitability because of the energy costs It will be felt in Q4but then through 2015 too," Rainforth said.
The recent boost to refining profit came from unplannedrefinery outages in Venezuela, strong demand from Latin Americaand a colder-than-usual autumn in the United States thatincreased demand for gasoline and gasoil in the Atlantic basin.
The gains in refining are set to partially offset heavylosses in the oil exploration and production segments whichrange from 12 percent for BP to 21.5 percent for Shell and 23percent for Total, according to Jefferies.
"The strong margins that we're seeing at the moment willreduce pressure on closures," Leitch said.
But refineries are still living on borrowed time. In a noteto clients sent earlier this month, KBC noted that "actualmargins may be lower than those seen on paper."
Around 2 million barrels per day, or roughly 10 percent ofEurope's refining capacity needs to be shut by 2018 in order tobalance the market, analysts say.
"The good times that the refineries are having at the momentare borrowing from 2015," Leitch said. "Toward the back end ofnext year, margins will be a lot weaker, and we'll see a lotmore pressure for closures." (Editing by William Hardy)
BP (BP.)
