Saras and Petroplus profits soar on high diesel demand

Milan/Zurich: Italian oil refiner Saras and Swiss peer Petroplus posted sharply higher second-quarter net profit yesterday largely on the back of strong demand for diesel, boosting their shares.

The independent refiners were bolstered by strong refining margins as world demand remained high both for diesel fuel and other middle distillates even as crude oil prices soared.

Net profit at Petroplus, Europe's biggest stand-alone refiner, jumped to $639 million from $48.3 million in the same period of 2007. A Reuters analysts poll had forecast net earnings of $417 million on average.

Chairman Thomas O'Malley said Petroplus expected crude oil prices to settle at a range of about $115 a barrel, plus or minus $10, for the next two or three months.

He said second-half cracks - the difference between the prices of refinery products and crude oil prices - would be in line with those of the first half.

Landsbanki Kepler analyst Fabian Baumann called the numbers "blowout results."

"Market seems to have completely underestimated Petroplus' earnings and cash generation abilities" in the second quarter, he said in a research note.

Saras, Italy's third-big-gest refiner by capacity, had adjusted net profit of 97 million euros ($150.4 million), up 15 per cent. The average forecast was 77 million euros, according to a Saras poll of analysts.

Cutting the flab

The refining margin was $11.30 a barrel, up 14 per cent year-on-year. Saras also benefited from lower financial expenses and losses from derivatives.

"The results are better than forecast," Cassa Lombarda said in a report.

Crude oil prices have hit record highs this year, though they have dropped back slightly, and averaged more than $120 barrel in the second quarter.

Refiners are often hurt by high crude prices since they have difficulty passing costs on to consumers. They also use a lot of the oil they process for power.

Shares in Petroplus were up 7.44 per cent at 49.10 Swiss francs at 0927 GMT. The DJ Stoxx oil and gas index was 1.82 per cent higher.

Saras, controlled by the Moratti family, was 4.13 per cent firmer at 3.1375 euros. Fellow Italian refiner ERG, which reports second-quarter results next Thursday, was up 1.89 per cent at 12.86 euros.

Italian Industry Minister Claudio Scajola said on Wednesday falling crude oil prices meant there was room for a further drop in fuel prices from 0.8 to 1.8 euro cents a litre.