Commodities
Repsol Refining Margins Close to Q4 2025 Levels Despite Volatile Market, RBC Says
Spanish oil and gas producer Repsol has shown modest signs of downstream strength, averaging a refining indicator of $10.90 per barrel, close to the Q4 2025 level, RBC said in a research note on Friday, with the figure inflated by strong March performance.So far in April, refining margins have been more volatile, but averaged a higher $11.50/bbl, RBC said, net of all variable costs including transport, a level the analysts said was well below margins in the market overall.This may reflect physical oil spreads as well as timing between the pricing of the crude and the final product, RBC said, noting it had seen several "messy" Q1 updates from US refiners, notably Exxon Mobil (XOM), in the last week or so.The analysts foresee refining margins structurally higher than mid-cycle levels through 2026 and 2027 due to tightness in distillate inventories and Repsol looks poised to benefit as a result.Upstream production volumes looked "disappointing" versus RBC estimates though they were influenced by a number of one-off events.RBC's revised estimates for Q1 upstream earnings were cut to 334 million euros ($390.4 million) from 339 million euros and industrial earnings were revised to 530 million euros from 606 million.Q1 adjusted net income is now expected to be 985 million euros, down from 1.09 billion euros, placing RBC's estimate 2% below consensus for the quarter.RBC also revised its own Commodity Price Deck which now foresees higher prices for this year and next and an $80/barrel long term Brent outlook, up from $70 previously.The Iran conflict is likely to lead to smaller inventories which are supportive of refining margins, the analysts said and Repsol's share price has generally tended to trade in alignment with those margins, the analysts said.RBC said it expects refining margins to be strong in 2026 and it forecasts a free cash flow yield for Repsol of 11% in 2027.RBC expects Repsol to defer the IPO it has been planning for H2 for its upstream segment until there is more robust confirmation that oil markets will remain strong in the medium term.A longer war in the Middle East raises the risk of a global recession and that in turn represents a demand-side risk for Repsol, RBC said.RBC raised its price target to 32 euros up from 29 euros previously and maintained a sector outperform rating on the company.
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