U.S. oil refiners set to make first profit since pandemic began

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July 28 (Reuters) – U.S. oil refiners are expected to post their first quarterly profit since the COVID-19 pandemic, even as rising oil prices and lower margins in June dampened analyst optimism favored by the rebound in fuel demand.

The demand for gasoline and diesel fuel in the United States has almost returned to 2019 levels after the drop in travel and business activity at the worst of the coronavirus pandemic in 2020. Refiners have ramped up processing in the wake of the business recovery, but are also grappling with an increase in crude oil prices, which have jumped 48% this year.

The top three independent U.S. refiners – Valero Energy Corp (VLO.N), Phillips 66 (PSX.N) and Marathon Petroleum Corp (MPC.N) – are expected to report combined net income of about $ 675 million in the second quarter.

That would be down from the $ 1.3 billion in profit forecast just 30 days ago, and analysts fear the resurgence of coronavirus cases could undermine economic demand.

“There are fears that the second quarter may represent a peak in profits for the group this year,” said Jason Gabelman, analyst at Cowen and Co.

U.S. crude rose nearly 24% in the quarter, and while transportation fuel prices tend to rise in tandem, prices of other commodities like naphtha, asphalt, and propane tend to rise. lag behind the increase, reducing margins.

Earlier this month, the US Energy Information Administration forecast that the consumption of liquid fuels in the United States in 2021 will increase by 1.5 million barrels per day from 2020. Gasoline products supplied have rebounded in the second quarter at levels not seen since before the start of the pandemic.

This makes analysts optimistic about the next reports, after the three major refiners lost $ 1.3 billion in the first quarter, according to data from Refinitiv IBES. Valero releases its results on Thursday, followed by the other two next week.

Going forward, the spread of the highly transmissible variant of COVID-19 Delta threatens the nascent travel resumption, with the United States saying this week it will not lift any existing travel restrictions “for the time being.”

Refining margins began to decline in June, falling to about $ 19.11 a barrel at the end of the month, from $ 20.42 at the end of the first quarter, according to data from Refinitiv Eikon.

HIT BIOFUEL BLEND

In the second quarter, blending ethanol into gasoline also hurt margins, as the price of corn-based fuel rarely exceeded gasoline, analysts said.

Refiners also had to pay more for renewable fuel credits in the United States, which hit a record $ 2 in the quarter. The cost of renewable identification numbers (RINs) – the credits used to comply with U.S. biofuel blending laws – rose 22 cents each to $ 1.54 at the end of June, from $ 1.32 at the end of the first trimester.

Refiners are required by law to blend biofuels into their gasoline pool, or pay so that others can do the same. The pandemic generally reduced the mixing activity and as a result fewer credits were issued which increased their costs.

Delta Airlines (DAL.N) refinery in Trainer, Pa., Reported a second quarter operating loss of $ 157 million in early July, in part due to higher costs associated with blending biofuels in its products .

“The demand trends have been pretty encouraging and unless there is another round of blockages. That’s not really the problem. The problem has been a bit more on the cost side of the RIN,” said Matthew Blair, analyst at Tudor Pickering Holt and Co.

Reporting by Arathy S Nair in Bengaluru; Editing by Marguerita Choy

Our Standards: Thomson Reuters Trust Principles.

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