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ConocoPhillips' (COP) second quarter earnings will likely be lifted from the previous quarter by higher oil prices, but the increase will be offset by narrower refining margins and low prices for natural gas.

In an interim report, the third largest U.S. oil company said prices for benchmark crude were between 32.4% and 38.6% higher than during the second quarter. But "whatever benefit that they gain from higher oil prices they surrendered in lower natural gas prices, lower refining and marketing margins," said analyst Fadel Gheit, with Oppenheimer & Co.

The Houston-based company's report underscores the recent changes in the business environment for Big Oil, which has seen the price of its main commodity - crude oil - climb recently after plunging dramatically from record heights last year in the wake of the financial crisis. Crude prices, however, remain much lower than in the same period last year, when they averaged $121.38 per barrel.

Refining margins are likely to be squeezed by higher oil prices and falling prices for refined products due to lagging demand.

Conoco is more exposed to low natural gas prices than competitors like Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), but the company will still be able to capture the benefit of higher oil prices, said Gheit. Benchmark natural gas prices for the second quarter were at $3.51 per million British thermal units, versus $4.91 per million British thermal units during the first quarter, Conoco said.

Conoco said Tuesday it expects total second-quarter production of about 1.86 million barrels of oil equivalent a day. In April it said it expected output to be below the first quarter's 1.93 million average because of planned maintenance and seasonal trends. The prior-year figure was 1.75 million. The data all exclude OAO Lukoil Holdings (LUKOY), in which Conoco holds a 20% stake.

The refining and marketing business, hurt by high inventory levels, will see refining capacity utilization rates in the upper 80% range, with domestic utilization in low-90s.

Conoco also said Lukoil will result in a $192 million second-quarter gain to align Conoco's first-quarter estimate to Lukoil's actual results, which were reported last month.

Conoco is set to report second-quarter results July 29.

Shares were recently down 2.45% at $39.83.

-By Angel Gonzalez, Dow Jones Newswires; 713-547-9214; angel.gonzalez@dowjones.com

(Kerry Grace Benn in New York contributed to this story.)