As the first quarter of the year comes to a close, US fuel manufacturers are anticipated to report increased earnings due to robust fuel exports and margins, despite a slump in domestic diesel demand. During the pandemic, refiners have benefited from favorable pricing and demand, with changing patterns of product consumption offering additional support. For example, jet fuel demand has surged as diesel usage has waned.
Matthew Blair, a refining analyst at Tudor Pickering Holt and Co., observes that US refiners have had a strong quarter, but warns of a potential decline in the second quarter. Valero Energy, the nation’s second-largest refiner by capacity, is expected to report a more than threefold increase in per-share profit to $7.23, compared to $2.31 per share last year. Marathon Petroleum, the top US refiner by volume, is forecasted to report a per-share profit of $5.71, up from $1.49 a year ago, while Phillips 66’s profit could reach $3.60 per share, compared to $1.32 a year ago.
Exxon Mobil has also indicated that its refining profits for the period could reach $3.55 billion, a significant increase from last year’s $332 million, which was affected by high maintenance costs. However, analysts predict a weaker second quarter due to decreasing exports and capacity expansions in Asia, the Middle East, and the US Gulf Coast.
The US refining crack spread, an indicator of the profit derived from processing a barrel of oil into fuels, currently hovers around $30 per barrel, $10 lower than last year. Furthermore, the four-week average of US distillate product supplied, a measure of demand, has mostly remained below the five-year average throughout the first quarter, as reported by the US Energy Information Administration.
Jefferies bank analysts highlight lingering concerns about long-term demand, pointing to lower industrial activity projections in OECD member countries, with only partial compensation from China. As US fuel makers prepare to announce their first-quarter earnings, the industry remains watchful of shifting demand dynamics and the potential impact on refiners’ future profitability.