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Refining to boost big oil company profits

HOUSTON (Reuters) - Fatter-than-expected refining margins and higher crude and natural gas prices will lift quarterly results at big oil companies such as Exxon Mobil Corp XOM.N and may push profits above analysts' estimates.

Global refining margins have suffered for the past two years as the economic slowdown shrank demand for fuels like diesel and gasoline. Now, gasoline demand has turned higher as more people drive to summer vacation destinations.

Chevron Corp CVX.N, the second-largest U.S. oil company, said last week that it saw better margins at its refineries and chemicals business. That will help integrated oil companies -- ones with exploration and refining units -- beat earnings expectations, analysts say.

“The earnings for the integrated oil companies have been tipped already by Chevron,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “We’ve seen modest improvement in the economy, and the number of miles driven in the U.S. is up slightly.”

Year-to-date, gasoline demand in the United States, the world’s top oil consumer, is up nearly 1 percent from a year ago, according to data from MasterCard’s SpendingPulse report.

Paul Cheng, an analyst at Barclays Capital, said in a July 8 investor note that he expects integrated oil companies like Chevron to beat consensus earnings estimates.

Barclays expects Exxon, the world’s largest publicly traded oil company, to top the consensus estimate of $1.47 (96 pence) per share, based on a better-than-expected performance from its refining and chemicals business.

Analysts said European oil companies including France's Total SA TOTF.PA will benefit from higher refining margins.

For Total, StarMine SmartEstimates, which puts more weight on recent forecasts of top-rated analysts, points to a profit that could exceed the consensus estimate by nearly 3 percent.

OIL, PROFITS UP

Crude oil prices rose about 30 percent from a year ago to an average of about $78 (51.11 pounds) per barrel in the second quarter, but were nearly flat with the 2010 first quarter. Companies like BP Plc BP.LBP.N with heavy exposure to oil production are seen generating the largest year-over-year profit gains.

BP and Royal Dutch Shell RDSa.L report profits on the basis of replacement cost or current cost of supply, numbers that exclude unrealized gains or losses related to changes in the value of fuel inventories and are comparable to net income under U.S. generally accepted accounting principles.

A Reuters poll of nine analysts gave an average forecast of $4.98 billion (3.26 billion pounds) for BP’s replacement cost profits excluding oil spill costs and non-operating items, up 77 percent from the same period of 2009.

Still, investors will focus on what BP has to say about clean-up costs for the Gulf of Mexico oil spill. The British company owned the well that ruptured and caused the worst-ever U.S. oil spill, and it is liable for billions of dollars in clean-up costs and other claims.

Shell is expected to report a 10 percent rise in cost of supply net income excluding one-offs, to $3.48 billion (2.28 billion pounds).

Profit at Exxon Mobil, the world’s largest publicly traded oil company, is expected to rise 69 percent to $6.9 billion (4.5 billion pounds), according to analysts surveyed by Thomson Reuters I/B/E/S.

SPILL TALK

Investors will also look for any word that fallout from the Gulf of Mexico is spreading.

“Because of the Gulf spill, I think you are going to see exploration and regulatory costs go up in the United States,” said Tina Vital, a global oil analyst at Standard & Poor’s. “Investors are going to be looking for any impact.”

Still, she added that the accident will only have a minor impact on oil and gas output for oil companies that are large enough to ramp up operations elsewhere in the world.

BP, due to report earnings on July 27 ahead of other peers, is the owner of the Macondo well that ruptured on April 20, killing 11 men.

In response to the disaster, the U.S. government halted most drilling in the Gulf of Mexico for six months until new safety regulations are in place. The rules may increase costs for companies like Exxon, Chevron and Shell that search for oil and natural gas in the deep waters of the Gulf.

Reporting by Anna Driver. Additional reporting by Tom Bergin in London. Editing by Robert MacMillan

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