Sheila McNulty ConocoPhillips’ interims point to refining difficulties

The price of oil has, as usual, been keeping everyone on their toes. But with oil prices up from recent lows, that is not an issue for the oil majors.

What might well be an issue when their second quarter results come out later this month is the refining end of the business. ConocoPhillips, the US’ third biggest oil company, said in releasing its interim results today that its refining and marketing results for the second quarter will be impacted by factors such as low worldwide distillate margins.

The company’s average worldwide crude oil refining capacity utilisation rate for the second quarter is expected to be in the upper-80-per cent range. It was not so long ago  when the majors were running at full capacity, and there were questions then about how the world’s refineries could keep up with growing demand.

But the economic downturn, looming carbon legislation and questions about the future of petrol as the main transportation fuel have refiners wondering about their future. And investors are onto the fears.

Credit Suisse says every independent refiner has underperformed the S&P 500 in the past month. In a new report on the sector, it also noted that the IEA cut its five-year global crude demand forecasts due to the economic recession and predicted that consumption will not regain 2008 levels until 2012.

Not exactly a stellar forecast if you are the one processing and selling the oil, as refiners do. But refiners have been in tight spots before and somehow found their way back on top again. The ups and downs are the nature of the oil business.

Yet, this time around they might have to come up with something more solid than a pickup in the economy to convince investors they are a long term stock worth investing in. The ethanol boat may have floated (and sunk, according to many critics), but there are still countless biofuels to push into, or game-changing technologies to make refining more environmentally friendly.

Duke Energy’s announcement that it will invest about $121m to study carbon dioxide storage sites in the US is an example of the future. Finding a way to get there with companies like Duke, the power producer, who are moving away from their traditional businesses into new areas  is up to the refiners. But the field is wide open for innovation.