Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

As Big Oil unveils second-quarter results this week, investors will be looking down more than usual.

While the upstream bit of the major oil companies -- the business of exploring for reserves and producing them -- usually dominates proceedings, the downstream refining, marketing and chemicals operations have moved into the spotlight. The crash in oil prices has sent upstream profits tumbling, leaving the downstream businesses to (try to) pick up the slack.

Upside Down
Upstream profits at the oil majors have largely evaporated
Source: Bloomberg, the companies
Note: Data are indexed to 100 in 2011. Figures reflect changes in net income for Exxon Mobil, Royal Dutch Shell and Chevron; operating income for BP and Total.

Take Exxon Mobil. In 2015, net income at its upstream business slumped to about $7 billion, down from more than $27 billion the year before. Thankfully, its chemicals and refining and marketing businesses did better -- although the extra $3.6 billion they made last year hardly saved the day.

Still, every little bit helps even at this scale, especially when you've got hungry dividend collectors to feed. Of the five majors, only Exxon is still showing profits in its upstream business, so proportionally, downstream is where it's at right now:

The downstream now accounts for all the profit at most of the majors as the upstream has turned red
Source: Bloomberg, the companies
Note: Data reflect net income for Exxon, Shell and Chevron; operating income for BP and Total. All figures are pre-corporate expenses.

The problem with this is that the downstream is also sputtering. Refining and marketing churned out profits last year as the collapse in oil prices spurred extra demand for fuels like gasoline. This year, while hopes for a repeat ran high through much of the first half, they were dashed amid a persistent glut in inventories of refined products and weak margins:

A Crack in Confidence
Refining spreads were down 29 percent on average in the first half of 2016 versus a year ago
Source: Bloomberg
Note: Generic 1st month Nymex 3:2:1 crack spread.

Expect those weaker margins to weigh on results as they trickle out this week.

More ominously, the unusually early seasonal drop in gasoline margins this year -- something I wrote about here -- points to a hard slog through the rest of the year to try to clear the glut of fuels in storage tanks. The implication is that refiners of all stripes will ease back and go down for a bit more maintenance than usual.

Since refiners are the ones who actually buy virtually all of the world's crude oil output, that doesn't bode well for the majors' upstream business through the rest of this year, either.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at

To contact the editor responsible for this story:
Beth Williams at