U.S. oil refiners in coming days are expected to report the worst second-quarter results in a decade, with production outrunning demand while pandemic-related closings have sapped summer travel.
Fuel consumption has tumbled, with latest U.S. data showing a 25% drop on auto travel from a year earlier and a 75% decline in passengers at airports. Refiners get the bulk of their profits from domestic fuel sales, with the June quarter among the biggest for travel.
The seven top independent refiners, including Valero Energy Corp (VLO.N), Phillips 66 (PSX.N), PBF Energy Inc (PBF.N) and Marathon Petroleum Corp (MPC.N), are expected to post losses.
Valero on Thursday is expected to report a per share loss of $1.41, according to IBES data from Refinitiv, compared to a profit of $1.51 a year earlier. The group’s average per share deficit will be $1.05, according to Refinitiv, compared to a $1.65 profit a year-ago.
Refinery crude processing rates remain about 2.8 million bpd, or 17% below the seasonal average over the past five years, according to the U.S. Energy Information Administration. Profits also were hurt by high inventories, as refiners ramped up in anticipation of business reopenings.
Refiners with retail networks could receive a boost from sales of tobacco and beer, which ticked up in the quarter and could offset lower year-on-year volumes, according to Credit Suisse.
“Refiners benefited as consumers who may have shopped at bigger, more crowded stores like Walmart (WMT.N) shifted spending to smaller refiner retail locations,” said Matthew Blair, refining analyst at Tudor, Pickering, Holt and Co.
WEST COAST WOES
Companies with heavy West Coast presence face added trouble because of California’s second lockdown, with tech companies such as Facebook and Google having employees work from home.
“West Coast refining margins will be extremely weak due to a hit in driving demand…California was one of the first states to enter lockdown and has been hit again,” said Blair.
Marathon’s Martinez, California, refinery has remained idle and at least one of PBF Energy’s two California plants could be idled to reduce losses, Credit Suisse said.
“We don’t see gasoline demand recovering to pre-pandemic levels in California,” Credit Suisse refining analyst Manav Gupta said in a note.