BP will take a hit of up to $2 billion as it scales down one of its four European refineries before an anticipated decline in demand for some petrochemical products.

The FTSE 100 energy company is to write down the value of the Gelsenkirchen refinery in Germany, as it reviews operations and tries to reduce costs, contributing towards a balance sheet charge of between $1 and $2 billion.

BP said in March that it planned to scale back production at the German refinery by about a third from next year owing to weaker market demand. The facility has a processing capacity of about 265,000 barrels a day and is one of two BP refineries in Germany.

Weaker refinery margins on products including diesel and jet fuel, and at its Whiting refinery near Chicago, will also hit earnings by between $500 million and $700 million when BP reports its second quarter results on July 30. The impact will be partially offset by the absence of an outage at the Whiting refinery at the start of the year, the company said.

The disclosure from BP came a week after London-listed rival Shell said it would take an impairment of up to $2 billion against the sale of its Singapore refineries and pausing work on its Dutch biofuel plant.

Trading was also marred by a weaker oil trading performance after a strong first quarter result, while gas marketing and trading is also expected to be “average”.

Analysts at Jefferies, the investment bank, said the update would result in a downgrade in earnings estimates for the quarter of about 20 per cent. Production volumes from BP’s upstream business are expected to be flat compared with the first three months of the year.

Disappointing second quarter numbers are another confidence knock as Murray Auchincloss, the BP chief executive, attempts to take costs out of the business and close the valuation gap with rivals in the oil and gas sector.

Auchincloss has set out plans to save at least $2 billion in costs by the end of 2026 and has frozen external hiring, except for frontline roles, well-site leaders and other safety-critical roles.

The company has also stopped bidding on new offshore wind licences. Instead resources have been focused on existing projects in the UK and Germany, where development is already under way.

The shares closed down 20½p, or 4.3 per cent, at 454¼p.