By Nicole Jao
NEW YORK (Reuters) – Wall Road is bracing for a pointy decline in U.S. oil refiners’ fourth-quarter earnings as gas demand softened, whereas in search of readability on the sector’s preparations for President Donald Trump’s threatened tariffs on crude imports from Canada and Mexico.
U.S. refiners have seen earnings slide from report ranges in 2022, when a restoration in demand following the COVID-19 pandemic and Russia’s invasion of Ukraine drove up gas costs.
That demand has since slowed, and now Trump’s promise to set a 25% tariff on oil imports from Canada and Mexico by Feb. 1 might additional hit earnings by driving up the price of crude.
U.S. gasoline retail costs decreased for the second consecutive 12 months in 2024. Weaker demand for the transport gas, probably the most consumed oil product within the U.S., in the course of the summer season of 2024 in comparison with 2023 helped to construct inventories. Within the second half of 2024, costs averaged 10% decrease than within the second half of 2023, in accordance with the U.S. Vitality Data Administration (EIA).
The U.S. gasoline futures crack unfold, or worth distinction with the U.S. benchmark West Texas Intermediate crude, which is a theoretical measure of a refinery’s revenue margin, fell under $11 a barrel to a one-year low in December.
The ultra-low sulfur diesel futures crack unfold eased to an almost two-month low of underneath $22 a barrel in the course of the month.
“Refining margins have actually come off the boil loads and crack spreads are fairly low,” stated Stewart Glickman, fairness analysis analyst at CFRA Analysis. “We anticipate earnings efficiency within the fourth quarter to be fairly tepid,” he stated.
Valero (VLO), the second-largest U.S. refiner by capability, is about to kick off refiner earnings on Thursday, with analysts forecasting earnings of seven cents per share, down from $3.55 per share a 12 months in the past, in accordance with information from LSEG.
Marathon Petroleum (MPC), which is the highest U.S. refiner by quantity, is forecast to report per share revenue of 12 cents, in contrast with $3.98 per share a 12 months in the past, LSEG estimated.
Phillips 66 is anticipated to report earnings of adverse 23 cents per share, in contrast with $3.09 per share a 12 months in the past, in accordance with LSEG estimates.
Oil majors BP (BP) and Exxon Mobil (XOM) earlier this month signaled that weaker refining margins within the fourth quarter would additionally dent their earnings.
Shares of Valero slipped greater than 6% in 2024, whereas Phillips 66 fell greater than 15% throughout that interval.
Shares of Marathon Petroleum closed 2024 down 8% for the 12 months.
Buyers are additionally eager to listen to from U.S. refiners within the earnings season on how they’re making ready for the potential affect of the tariffs on imports from Canada and Mexico, which the White Home on Tuesday stated Trump nonetheless deliberate to go forward with on Feb. 1.
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Canada has been the highest supply of U.S. oil imports for over twenty years and provided greater than half of the whole U.S. crude imports in 2023, in accordance with the EIA.
The brand new tariff might drive up the price of crude for refiners, notably within the Midwest that processes about 70% of the 4 million barrels per day (bpd) of crude imported from Canada.
“Clearly, refiners must plan for the state of affairs,” stated Brian Kessens, portfolio supervisor at Tortoise Capital.
Many U.S. refining amenities are configured to run heavier oil grades – like these from Mexico and Canada. Some had been shopping for an outsized quantity of Canadian crude at year-end to assist cushion in opposition to potential tariff impacts.
U.S. crude oil imports from Canada rose by 689,000 barrels a day within the week ended Jan. 3 to 4.42 million bpd, the very best on report going again to June 2010, EIA information confirmed.
U.S. refiners HF Sinclair, Phillips 66 and Par Pacific Holdings have “elevated publicity” to Canadian crude, whereas Delek and Valero have restricted publicity, TD Cowen analysts stated in a be aware.
(Reporting by Nicole Jao in New York; Enhancing by Liz Hampton and Marguerita Choy)
