US oil refiners beat Wall Street bets

MAJOR United States fuelmakers beat Wall Street’s earnings expectations in the fourth quarter on strong refining margins and operating performance, and they predict profits will rise again this year thanks to global demand growth.

For 2023, three of the biggest US independent refiners – Marathon Petroleum, Phillips 66 and Valero Energy – posted combined adjusted earnings of Us$25.7bil.

While that beat forecasts, it was down from combined profits of Us$33.9bil in 2022, when market disruptions from sanctions on Russia’s energy industry drove record earnings.

Shares of Marathon are up 11% year-to-date, Phillips 66 is up about 9% and Valero has gained 8%, far outpacing the S&P 500 energy sector’s slight decline so far this year.

“Investors have turned positive on refiners and metrics, especially for gasoline demand, look good,” said Matthew Blair, a refining analyst at Tudor, Pickering, Holt & Co in an interview.

Marathon posted a profit of US$2.24 per share last quarter, while Phillips 66 earned US$3.09 per share and Valero earned US$3.55 per share.

Refiners benefited from lower prices for US crude oil during the quarter after Houthi rebel attacks in the Red Sea drove up freight costs. Crude prices are the greatest cost for refiners who process oil into transportation fuels, heating oil and other products. “We had a period of time where you could export from the US Gulf Coast to north-west Europe crude in the low US$2 a barrel range. That spiked to US$6 a barrel,” said Gary Simmons, chief operating officer for Valero.

“For our system, that is an advantage because it gives us a crude cost advantage versus our global competitors,” he added.

Valero saw margins of US$33 a barrel for ultra-low sulfur diesel in the US mid-continent and north Atlantic, and US$24 a barrel on the Gulf Coast during the quarter.

For its part, Phillips 66 saw margins of US$14.41 a barrel in the fourth quarter, down from US$19.73 a barrel the same period last year as fuel prices weakened.