Following a period of soaring earnings, U.S. refiners are bracing for a decline in first-quarter profits. Despite forecasts of a downturn, the industry continues to find support amidst disruptions in Russia and ongoing refinery maintenance activities. Analysts expect earnings to decline in the first quarter but pick up in the next few months as demand increases.
Margins remain strong
During the first quarter of 2024, U.S. refiners’s margins remained strong due to disruptions in Russian refineries as regional tensions impacted 14 percent of Russia’s refining capacity. Moreover, U.S. refiners faced planned and unplanned maintenance. This includes the outage in February at BP’s 435,000 barrels per day refinery in Whiting, Indiana.
The U.S. Energy Information Administration (EIA) also reported a decline in U.S. refinery utilization rates to 80 percent in February, compared to around 87 percent in the previous year.
Looking ahead, a positive demand outlook and strong product cracks are poised to drive refinery gains, setting the stage for a potential earnings recovery in subsequent quarters.
U.S. refiners’ earnings outlook
Valero Energy, Marathon Petroleum and Phillips 66, among the most prominent U.S. refiners, are gearing up to report their first-quarter earnings. Analysts anticipate a decline in profits compared to the previous year, with a decline in expectations due to the lingering impact of geopolitical tensions and operational disruptions.
Valero Energy, the second-largest U.S. refiner by capacity, should post its earnings on Thursday. The London Stock Exchange Group (LSEG) expects profits of $3.24 per share, down from $8.27 last year. However, Valero shares saw a 28 percent increase year-to-date.
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Gasoline prices
Gasoline prices are anticipated to experience upward movement, potentially rising by as much as 15 cents per gallon due to geopolitical uncertainties and supply disruptions. Analysts caution that sudden supply shocks could push prices above the $4 per gallon threshold for the first time since 2022.
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