TotalEnergies Faces Headwinds in Q1 2025: Navigating Oil Price Volatility and Refining Challenges

TotalEnergies, one of the world’s leading integrated energy companies, reported a significant decline in first-quarter 2025 earnings, driven by falling oil prices and persistent weakness in refining margins. While production metrics showed growth across key segments, the results underscore the vulnerability of energy majors to macroeconomic and market dynamics. Let’s dissect the numbers and assess the investment implications.

Ask Aime: How can I protect my investments in TotalEnergies amid falling oil prices and weakening refining margins?

The Profit Decline: Key Metrics

TotalEnergies’ diluted EPS for Q1 2025 dropped to $1.88, a 12.2% year-over-year (YoY) decline, while revenue fell 19.2% YoY to $45.5 billion. Analysts had already revised their estimates downward by 3.8% in the past month, reflecting growing skepticism about the company’s ability to navigate market headwinds. The results highlight a stark contrast between operational improvements and the adverse impact of commodity prices and refining sector struggles.

Driving Factors: Oil Prices and Refining Margins

1. Oil Price Pressures
2. The average Brent crude price in Q1 2025 fell to $72.2 per barrel, down sharply from $81.0/b in Q1 2024 and $83.2/b in Q1 2023. This 11% YoY decline directly reduced upstream revenue, as TotalEnergies’ liquids prices (excluding trading) averaged just $72.2/b, well below prior-year levels.

3. Ask Aime: What caused TotalEnergies' Q1 2025 earnings to plummet by 12.2%?

4. Refining Margins Collapse

5. The European Refining Margin Marker (ERM), a critical indicator for TotalEnergies’ downstream profitability, averaged $29.4 per ton in Q1 2025—a 59% drop from Q1 2024’s $71.7/ton and a 66% decline from Q1 2023’s $87.8/ton. While the ERM improved slightly from Q4 2024’s $25.9/ton, it remains deeply depressed due to overcapacity in petrochemicals and biofuels in Europe, which continues to suppress margins.

Segment Performance: A Mixed Bag

• Exploration & Production (E&P):
  Total production rose 3.1% YoY to 2,537.58 thousand barrels of oil equivalent per day (KBOE/D), fueled by new projects like Mero 2 (Brazil) and Akpo West (Nigeria). However, this growth was insufficient to offset the revenue drag from lower oil prices.

• Integrated LNG:
  LNG prices improved to $10.00/Mbtu from $9.58/Mbtu in Q1 2024, but they remain below Q4 2024’s $10.37/Mbtu, indicating seasonal or regional demand fluctuations.

• Refining & Chemicals:
  Despite 2.0% higher refinery throughput, margins were crushed by European market dynamics. Cash flow was further strained by $200 million in dividend payments from equity affiliates, a seasonal drag.

• Marketing & Services:
  Performance remained stable, in line with historical seasonal trends, but provided little growth momentum.

Financial Risks and Sensitivities

• Currency Volatility:
  A $0.1 appreciation of the euro against the dollar (the euro averaged $1.05 in Q1 2025 vs. $1.09 in Q1 2024) reduced adjusted net operating income by $0.1 billion. With the euro weakening further, this exposure remains a concern.

• Commodity Price Sensitivity:
  A $10/b rise in oil prices would boost adjusted net operating income by $2.3 billion, underscoring the company’s reliance on oil price recoveries. Similarly, a $2/Mbtu increase in European gas prices or a $10/ton ERM improvement would add $0.4 billion to net income.

Conclusion: Navigating the Crossroads

TotalEnergies’ Q1 2025 results paint a picture of a company caught between operational resilience and macroeconomic headwinds. While production growth and LNG price improvements offer glimmers of hope, the 19.2% YoY revenue drop and 12.2% EPS decline reflect the brutal reality of low oil prices and refining margin erosion.

Investors should note two critical factors:
1. Oil Price Recovery: TotalEnergies’ financial health hinges on a rebound in oil prices. With Brent averaging just $72.2/b in Q1 2025—well below 2023’s $83.2/b—any upward movement could quickly reverse the revenue slide.
2. Refining Margin Turnaround: The ERM’s collapse to $29.4/ton signals chronic overcapacity in European refining. Until this stabilizes, downstream operations will remain a drag.

TotalEnergies’ shares have already reacted, falling 6.6% over the past month—underperforming the broader market. While the company’s long-term strategy in renewables and LNG remains intact, near-term performance will depend on external factors like OPEC+ policy decisions and European energy demand.

In the short term, totalenergies is a Hold—waiting for commodity prices to stabilize or margins to rebound. For the risk-tolerant, the stock’s valuation at 6.2x forward EV/EBITDA leaves room for upside if oil prices recover to $85/b+, but patience is key.