US fuelmakers report lower profits in Q3 due to weaker margins and fuel demand

Energy analysts predict that the third quarter profits of U.S. refiners will be lower than last year due to a decline in margins, as fuel demand has slowed and more refining capacity is coming online. After the pandemic, and Russia's invasion in Ukraine, which boosted margins at record levels, refiners are now reversing their favorable pricing and high demand. The difference between the product price and the crude oil price for U.S. gasoline, diesel, and jet fuel declined in the third quarter. Margins also fell to seasonal lows that have been in place for several years due to the lackluster summer fuel consumption.

The U.S. crack in gasoline spread during the first quarter. In September, oil prices fell to the lowest level since November 2023. The diesel crack spread Traded at $17.98 per barrel in September. This was its lowest price since July 2021.

Jason Gabelman, TD Cowen's analyst, said that "cracks continue to improve from extraordinarily high levels in the last few years."

He said that fuel demand was about 5% lower than it was before COVID during the first quarter, while the supply from new refineries in the world increased. This put downward pressure on the cracks.

U.S. refinery profit margins measured by 3:2:1 spread Mid-September saw a drop to $14.28, the lowest level since early 2021.

Valero Energy is the second largest U.S. refiner based on capacity. Analysts are forecasting earnings of $1.01 a share, down from $7.49 a quarter ago, according LSEG data.

Valero shares are down 14% or more since the second quarter ended, continuing losses from earlier this year.

According to LSEG estimates, Marathon Petroleum, the largest U.S. refiner in terms of volume, will report a profit per share of $1.02, compared to $8.14 a few years ago.

LSEG estimates that Phillips 66 will report earnings of $1.72 a share at the start of November, compared to $4.63 a share a year earlier. Due to low profits, the Houston-based refiner will close its Los Angeles oil refinery that produces 139,000 barrels per day.

Oil majors warned earlier this month of a decline in refinery profit margins as well as weak oil product sales in the third quarter.

BP, Shell, and Exxon Mobil warned that lower refining profits, due in part to a slower global demand for oil and lower trading results in the third quarter, could dent their results.

Analysts expect refiners to announce some buybacks despite their profitability struggles.

Matthew Blair, TPH&Co's managing director, said that without many growth projects, the free cash flow of refiners can be used to pay dividends to shareholders.

(source: Reuters)