Chevron (CVX 0.37%) posted nearly $6.6 billion of net income in the first quarter. That was up from $6.3 billion in the year-ago quarter -- and 4% better than the analysts' consensus estimate -- even though Chevron delivered lower production and realized lower oil and gas prices. 

The key to the company's success came from an unexpected source: refining. Here's a look at the quarter and what's ahead for the oil stock.

Integration paid big dividends

Chevron has an integrated global energy business. It explores for and produces oil and gas (upstream), operates midstream assets like pipelines and processing plants that support its upstream business, and has downstream refining, chemicals, and marketing operations. That integrated approach paid off handsomely in the first quarter.

Upstream earnings were down

Chevron's upstream business generated about $5.1 billion of earnings in the first quarter. That was down from $5.5 billion in the fourth quarter and $6.9 billion in the year-ago period. Weighing on upstream earnings were lower pricing and production. 

The company's total output averaged 2.98 million barrels of oil equivalent per day (BOE/d) during the quarter. That's down 3% year over year because of the sale of its Eagle Ford shale properties in the U.S. and the expiration of a production contract in Thailand. Meanwhile, the average price of Brent oil (the global benchmark price) was down 16% year over year and 7% from the fourth quarter. 

Downstream earnings were up

Chevron's downstream business generated $1.8 billion of earnings in the period, up five-fold from the year-ago period. Earnings from its U.S. downstream business doubled to $977 million because of higher margins on refined product sales. That more than offset a 3% decline in crude oil produced because of a planned maintenance project at a refinery in California. Chevron also benefited from higher renewable fuel sales following its acquisition of Renewable Energy Group and rebounding jet fuel demand. 

Chevron's international downstream business reversed a year-ago loss of $155 million to produce $823 million of profit. It benefited from higher margins, crude oil processed, and demand. Rebounding jet fuel demand and consumption in Asia fueled a 10% increase in refined product sales. 

Integration could continue to pay dividends

Chevron's integrated business model positions it for continued success. Driving that view is what appear to be very favorable conditions for the oil and refined products markets on the horizon.

The International Energy Agency's (IEA) April oil market report laid out the bull case for demand. The IEA predicts that world oil demand will climb by 2 million barrels per day (BOD) this year to a record of 101.9 million BOD. Fueling that forecast is resurgent demand in China and strengthening demand for jet fuel and kerosene. The IEA expects those two fuels will account for 57% of the incremental demand in 2023. That bodes well for Chevron's refining business. 

That resurgent demand will come at a time when supplies will be under pressure. OPEC+ revealed a surprise production cut in early April, which will limit supplies in the second half. In the IEA's view, oil demand will surpass supplies in the back half of 2023. That will likely drive oil prices higher. Rising crude prices would boost Chevron's upstream profits. 

The dual catalysts of growing demand for oil and refined products and the potential for higher oil prices could boost Chevron's earnings in the second half of this year.

Chevron's profit gusher could continue

Chevron's refining business helped fuel better-than-expected first-quarter profits, showcasing the benefits of its integrated business model. That integration could continue to pay dividends this year. The refining market should remain robust, driven by jet fuel and Chinese demand. Meanwhile, an expected supply shortfall could push up oil prices. These catalysts could boost Chevron's downstream and upstream businesses, potentially giving it stock the fuel to surge.