Tesoro Corp.'s profits tumbled in the second quarter as it was battered by higher crude prices and lower demand. The company also reported its Hawai'i refinery produced less and had a financial loss on a gross refining margin basis.

The San Antonio-based operator of refineries and service stations said net income fell to $4 million, or 3 cents a share, during the quarter.

That compared with a profit of $443 million a year earlier, or $3.26 a share.

Tesoro had been expected to post lower earnings because unlike some larger oil companies it must buy crude oil for its seven refineries and has been squeezed by falling demand as motorists cut back their gasoline purchases. Tesoro's Campbell Industrial Park refinery is the largest in Hawai'i. There are also 32 service stations carrying the Tesoro name in the state.

"The refining sector continues to be impacted by higher crude and energy costs, and lower demand compared to a year ago," said Bruce Smith, Tesoro chairman, president and chief executive officer, in a press statement.

Tesoro reported a negative gross refining margin for its Hawai'i operation as production slowed here. Gross refining margin represents its revenue minus costs that include crude oil, transportation and distribution.

Tesoro also reported that production at the 95,000 barrel-a-day Hawai'i facility had fallen to 71,000 barrels during the second quarter. That was almost 23 percent lower than a year earlier.

Tesoro has previously said it was making progress with several profitability initiatives for Hawai'i, including reducing reliance on light sweet crude from Asia and getting higher prices for finished products.

During the quarter, production at the Hawai'i facility fell in all products excluding heavy oils and related products.

The company said among the operational improvements it expects during the second half of the year are initiatives at its Campbell Industrial Park facility.

Revenues for the quarter were $8.75 billion, up from the $5.60 billion of a year earlier.

Tesoro's results, when adjusted for the unusual items, were 3 cents better than the average estimate of analysts surveyed by First Call.

Tesoros shares closed up 73 cents at $16.51 yesterday on the New York Stock Exchange.