US refiners on standby for higher profits due to strong fuel demand

US refiners are expected to post higher profits for the third quarter as margins on the sale of gasoline and diesel improved despite the surge in crude oil prices, analysts said.

After more than a year of declining fuel demand, gasoline and distillate consumption is back in line with five-year averages in the United States, the world’s largest consumer of fuel. This has pushed up the margins on refined products to more than double what these companies were doing at the same time a year ago.

The seven largest independent US refiners, including gloves Marathon Petroleum and Valero Energy, are expected to post an average gain per share of 66 cents, compared to a loss of $ 1.32 for the third quarter of 2020, according to IBES data from Refinitiv. (GRAPHIC: https://graphics.reuters.com/USA-REFINERIES/EARNINGS-OUTLOOK/mopanjqyzva/)

These gains are driven by the 3-2-1 cracking margin, an approximation of refining margins, which assumes that one barrel of crude oil is refined into three parts gasoline, two parts diesel, and one part jet fuel. This margin is currently $ 21 per barrel, down from around $ 9 a year ago.

Demand for energy picked up quickly after the worst days of the 2020 pandemic, and prices for Brent and U.S. crude oil have hit multi-year highs in recent days. But demand for products also increased, which helped boost margins.

The products supplied – an indicator of US demand for refined products – were 21.5 million barrels per day in the most recent week, slightly more than the same period in 2019, before the start of the pandemic. according to the US Energy Information Administration (EIA).

“The market is recovering its equilibrium,” said Manav Gupta, analyst at Credit Suisse in a bond.

Refiners are also benefiting from the drop in stocks of their products, the recent storms and the pandemic having put refining capacity out of service. About 2.5 million barrels per day of refining capacity have been shut down since the start of the pandemic, nearly four times the ten-year average, according to Credit Suisse’s Gupta.

Delta Air Lines’ Monroe, Pennsylvania refinery earned nearly $ 100 million in the last quarter, its first positive results since the first quarter of 2020, according to figures released last week. Tudor Pickering Holt analysts cited strong gasoline and diesel cracking margins to help the refiner recover.

Demand for jet fuel is still below pre-pandemic levels, but international flights are expected to resume to Europe in November. The spot price of kerosene-type jet fuel on the US Gulf Coast is $ 2.10 per gallon, the highest since October 2018, despite demand still 12% below 2018 levels, according to US data. EIA.

Analysts have also raised the estimates of refiners such as PBF Energy and Hollyfrontier due to falling costs of complying with national biofuels laws. Refiners are required to blend ethanol with domestic gasoline or purchase credits for others who do so.

The cost of these credits fell sharply during the third quarter. Reuters reported in September that the U.S. Environmental Protection Agency is expected to recommend reducing federal biofuel blending mandates for 2021 below 2020 levels, analysts said.

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