Preview: Wall Street braces for oil refiners' lower Q4 earnings, tariff plans

Delek US Holdings

29/01/2025 11:00

* 
      Valero to kick off Q4 US refiner earnings on Thursday
    

        * 
      Soft fuel demand continues to weigh on Q4 refining margins
    

        * 
      US gasoline futures crack spread hit one-year low in
December 
    

        * 
      Investors to focus on refiners' plans to limit impact of
Trump's
tariffs
    

  
    By Nicole Jao
       NEW YORK, Jan 29 (Reuters) - Wall Street is bracing for
a sharp decline in U.S. oil refiners' fourth-quarter profits as
fuel demand softened, while seeking clarity 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 record levels in
2022, when a recovery in demand following the COVID-19 pandemic
and Russia's invasion of Ukraine drove up fuel prices. 
    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
could further hit profits by driving up the cost of crude.
    U.S. gasoline retail prices decreased for the second
consecutive year in 2024. Weaker demand for the transport fuel,
the most consumed oil product in the U.S., during the summer of
2024 compared to 2023 helped to build inventories. In the second
half of 2024, prices averaged 10% lower than in the second half
of 2023, according to the U.S. Energy Information Administration
(EIA). 
    The U.S. gasoline futures crack spread, or price difference
with the U.S. benchmark West Texas Intermediate crude
 RBc1-CLc1 , which is a theoretical measure of a refinery's
profit margin, fell below $11 a barrel to a one-year low in
December. 
    The ultra-low sulfur diesel futures crack spread  HOc1-CLc1 
eased to a nearly two-month low of under $22 a barrel during the
month.
    "Refining margins have really come off the boil a lot and
crack spreads are quite low," said Stewart Glickman, equity
research analyst at CFRA Research. "We expect earnings
performance in the fourth quarter to be pretty tepid," he said.
    Valero  VLO.N , the second-largest U.S. refiner by capacity,
is set to kick off refiner earnings on Thursday, with analysts
forecasting profits of 7 cents per share, down from $3.55 per
share a year ago, according to data from LSEG.
    Marathon Petroleum  MPC.N , which is the top U.S. refiner by
volume, is forecast to report per share profit of 12 cents,
compared with $3.98 per share a year ago, LSEG estimated.
    Phillips 66  PSX.N  is expected to report earnings of
negative 23 cents per share, compared with $3.09 per share a
year ago, according to LSEG estimates.
        Oil majors 
    BP  BP.L  and Exxon Mobil  XOM.N  earlier this month
signaled that weaker refining margins in the fourth quarter
would also dent their profits.
    Shares of Valero slipped more than 6% in 2024, while
Phillips 66 fell more than 15% during that period.
    Shares of Marathon Petroleum closed 2024 down 8% for the
year.

    TARIFF CONTINGENCIES
    Investors are also keen to hear from U.S. refiners in the
earnings season on how they are preparing for the potential
impact of the tariffs on imports from Canada and Mexico, which
the White House on Tuesday said Trump still planned to go ahead
with on Feb. 1.
    Canada has been the top source of U.S. oil imports for over
two decades and supplied more than half of the total U.S. crude
imports in 2023, according to the EIA.    
    The new tariff could drive up the cost of crude for
refiners, particularly in the Midwest that processes about 70%
of the 4 million barrels per day (bpd) of crude imported from
Canada.
    "Obviously, refiners have to plan for the scenario," said
Brian Kessens, portfolio manager at Tortoise Capital. 
    Many U.S. refining facilities are configured to run heavier
oil grades - like those from Mexico and Canada. Some were buying
an outsized amount of Canadian crude at year-end to help cushion
against potential tariff impacts.
    U.S. crude oil imports from Canada rose by 689,000 barrels a
day in the week ended Jan. 3 to 4.42 million bpd, the highest on
record going back to June 2010, EIA data showed.
    U.S. refiners HF Sinclair  DINO.K , Phillips 66 and Par
Pacific Holdings  PARR.N  have "elevated exposure" to Canadian
crude, while Delek  DK.N  and Valero have limited exposure, TD
Cowen analysts said in a note. 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
U.S. refined product margins slump    https://reut.rs/40A5bev
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Nicole Jao in New York; Editing by Liz Hampton
and Marguerita Choy)
 ((Nicole.Jao@thomsonreuters.com; Twitter/X: @ByNicoleJao; +1
646 540 2216;))