Total (TTE.US) expected to exceed profit forecast in Q2: Brent oil quarterly average price approaches $100, boosting upstream, with LNG business being the only drag.

French energy giant Total (TTE.US) announced its second-quarter earnings forecast on Thursday, stating that due to the surge in oil prices and refining margins driven by the Iran conflict, the overall profitability of the group is expected to increase. However, the performance of the integrated liquefied natural gas (LNG) division is expected to decline significantly due to the downturn in the European market and setbacks in gas trading. Total stated that the performance of the oil trading business in the second quarter is expected to remain at the same strong level as the first quarter, reflecting the market volatility caused by the Middle East conflict. Due to the US-Israeli war on Iran leading to the effective closure of the Strait of Hormuz, global oil supply has tightened, with Brent crude oil averaging around $97 per barrel in the April to June quarter, up nearly 45% from the same period last year. This price level has brought substantial profits to major Western oil companies, with Shell (SHEL.US) and BP p.l.c. Sponsored ADR (BP.US) previously announcing strong earnings forecasts. In addition to the trading business, the downstream refining sector has also benefited significantly. Total stated that due to supply disruptions in the Middle East and Russia tightening the supply of refined products, refining margins have increased and the performance and cash flow of the downstream business will "rise significantly." However, the company also mentioned that some refining capacity has been shut down for the past three months due to high temperatures and maintenance. The integrated power business has also become a highlight. Total Energy expects the cash flow of this department to experience "strong growth," mainly due to its acquisition of a 50% stake in a series of European operating gas power plants owned by EPH, completed at the end of April. In contrast to the hot oil sector, the performance of the integrated LNG business is noticeably lagging behind. Total warns that the revenue of this sector is expected to "significantly decrease," mainly due to the overall flat or declining European market, leading to poor performance in gas trading. The LNG sector accounts for about one-fifth of the company's overall performance, and its weak performance dragged the company's stock price down by 1.7% in early trading, more than the overall decline of the European energy sector. Despite the production impact in the Middle East, upstream profitability remains expected to increase Despite facing war disruptions, the upstream profitability of the exploration and production department is expected to increase by about $1 billion compared to the first quarter. Total currently estimates that oil and gas production in the second quarter will reach nearly 2.4 million barrels of oil equivalent per day, potentially driving organic growth in line with the quarterly target of 4%. It is worth noting that Total has drastically reduced its estimates of the impact of the Iran war on production. The company's latest estimate of production losses is about 210,000 barrels of oil equivalent per day, much lower than the estimated 360,000 barrels per day in the first quarter. This is mainly due to the increase in production from offshore oil fields in the UAE and gradual production recovery in other Middle Eastern countries starting in June. However, the company also pointed out that the benefits of high oil prices on the upstream will be offset by some accounting factors, as some of the additional crude oil from the Middle East is unable to be exported smoothly due to the blockade of the Strait of Hormuz. Total will release its complete second-quarter financial report on July 23rd.