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$16.1 -0.5  -3.0%

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Sector
Energy
Size
Mid Cap
Market Cap £1.43bn
Enterprise Value £4.14bn
Revenue £10.62bn
Position in Universe 2232nd / 6849

February freeze to hit refiners' earnings as investors look to demand

Wed 21st April, 2021 6:00am
By Laura Sanicola
    April 21 (Reuters) - Refiners are expected to report big
first-quarter losses after February's winter storm froze
activity along the Gulf Coast, but as more Americans are
vaccinated against COVID-19, analysts expect the industry's
outlook to brighten as demand rebounds.
    Seven independent U.S. refiners are projected to post an
average earnings-per-share loss of $1.32, versus a loss of 
$1.77 in the fourth quarter of 2020, according to IBES data from
Refinitiv. 
    The culprit? February's severe storm that knocked out power
for millions and took numerous refiners offline for weeks.
    However, analysts will be listening to the companies'
forward outlooks, expecting demand to rebound as most U.S.
states rapidly rolled out vaccination programs in the quarter.
U.S. fuel demand has rebounded in recent weeks, with overall
interstate miles traveled in the last week of March just 2%
below 2019 levels, the U.S. Department of Transportation said.
    By the end of the quarter on March 31, more than 30% of the
U.S. population had received at least one shot of the vaccine,
according to the U.S. Centers for Disease Control.
    " The  U.S. is leading the world in vaccine distribution and
that implies faster recovery in product demand as all
restrictions are lifted and economic activity fully resumes,"
Credit Suisse analyst Manav Gupta said in a note.
    U.S. refinery utilization has rebounded from the storm to
near 2019 levels of 85%, and U.S. refining margins continued to
improve to around $20 per barrel at the end of the quarter.
    The five-day cold spell in mid-February knocked out a third
of the nation's oil refining capacity, shutting individual units
and sometimes entire plants at 25 refineries in Texas, New
Mexico, Oklahoma, Louisiana and Tennessee, while simultaneously
raising electricity and natural gas costs for refiners.
    Valero Energy  VLO.N , which reports earnings on Thursday,
estimated earlier this month that the storm would reduce its
refining operating income by approximately $530 million.
Phillips 66  PSX.N  projected an adjusted net loss of $550
million to $700 million in the quarter, triple its original IBES
loss estimates.
    While road travel has picked up, jet fuel demand remains 25%
below pre-pandemic levels. As a result, refiners are struggling
to increase production without creating a glut of distillate
inventories that would hurt margins of diesel and kerosene.
    "Most of the focus is on whether refineries are going to
express confidence that margins will remain supported" and will
allow them to raise processing rates, said Jason Gabelman,
director of energy equity research at Cowen and Co. 
    Refiners are expected to address how they are dealing with
the rising cost of Renewable Identification Numbers, the credits
used for compliance with U.S. biofuels blending laws.
    U.S. renewable fuel credits prices reached a three-year high
in January and have risen another 20% since then. Several
refiners are in the midst of retrofitting refineries for
renewable diesel projects to try to offset those costs.
    "Even with the RINs headwind, margins are still looking
better for refiners as demand for fuel picks up," said Matthew
Blair, energy analyst at Tudor, Pickering, Holt and Co.

 (Reporting by Laura Sanicola; Editing by Dan Grebler)
 ((Laura.Sanicola@thomsonreuters.com;))
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