U.S. oil refiners expect strong first-quarter earnings as margins to sell gasoline and diesel strengthened due to a steep dropoff in refining capacity and crude oil supplies tightened because of Russia's war with Ukraine.
Refining capacity worldwide has dropped during the coronavirus pandemic, with several less profitable oil refineries closing in the last two years. However, worldwide fuel demand has rebounded to near pre-pandemic levels, boosting profits for facilities that are still operating.
Seven U.S. independent refining companies are projected to post earnings-per-share of 61 cents, compared with a loss of $1.32 in first quarter of 2021, according to IBES data from Refinitiv.
Profit margins for making both gasoline and distillates—diesel, jet fuel and heating oil—were already at their highest in several years coming into 2022, and have since risen, with the heating oil crack spread at nearly $41 per barrel by the end of March, nearly $20 more than average over the past five years.
U.S. independent refiners including Marathon Petroleum Corp., Valero Energy Corp. and Phillips 66 also benefited from a surge in natural gas prices in Europe which occurred due to the risk of European sanctions on Russian energy exports.
Valero kicks off refinery earnings on Tuesday; Phillips reports on Friday, with Marathon the following week.
Natural gas is needed to operate various units of oil refineries and the expense caused some European refineries to cut runs, particularly distillate-producing units. This contributed to a sharp fall in distillate inventories worldwide, putting a premium on production of diesel and jet fuel.
"Geopolitical dynamics should support U.S. refiners on wide natural gas spreads, though some impacts may be less visible with first quarter earnings than in future quarters," said Jason Gabelman, refining analyst at Cowen.
However, backlogged refinery maintenance and soaring crude oil prices may cap the otherwise strong earnings for some plants. Analysts lowered estimates for both Phillips 66 and PBF Energy Inc. due in part to spring maintenance.
Refinery feedstock costs soared in the first quarter as global benchmark Brent crude LCOc1 averaged near $98 a barrel for the first three months of the year, according to OPEC data. That was up about $18 from the last three months of 2021.
Feedstock costs heading into the summer looking increasing uncertain, according to the Energy Information Administration.
"Actual price outcomes will depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market," the EIA wrote in its short-term energy outlook.
Recommended Reading
EIG Refinances $11B in Senior Debt for Aramco Pipeline Deal
2024-07-07 - EIG subsidiary Pearl Pipelines will use the proceeds to repay financing related to its $25.3 billion acquisition of 49% interest in Aramco Oil Pipelines Co. three years ago.
Delek Logistics Closes Acquisition of Permian’s H2O Midstream
2024-09-12 - Delek Logistics closed a $230 million deal to expand its water midstream service in the Permian Basin with the acquisition of H2O Midstream, which overlaps with Delek's Midland Basin footprint.
FERC Filings Indicate Plaquemines LNG is Ready to Commission
2024-07-01 - Kinder Morgan has requested a tariff for natural gas delivery to the new Plaquemines LNG facility.
Investment Firms Up Offer to Buy Martin Midstream to $175MM
2024-07-29 - Nut Tree Capital Management and Caspian Capital, which have been pursuing an acquisition of Martin Midstream since May, have increased their offer for the company to $175 million.
Post Oak, Genesis Park Sell Permian’s Layne Water Midstream
2024-07-10 - PE firms Post Oak Energy Capital and Genesis Park sold the Delaware Basin’s Layne Water Midstream to an undisclosed buyer.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.