U.S. refiners are bracing for a significant drop in third-quarter profits compared to last year, driven by declining refining margins due to weak fuel demand and an increase in global fuel supply.
The 3-2-1 crack spread, which measures the profitability of refining crude oil into two barrels of gasoline and one barrel of diesel for every three barrels of crude, fell to $14.28 per barrel last month in the U.S. This marks the lowest level since early 2021, according to Reuters estimates.
Major American refiners, including Marathon Petroleum, Valero Energy, and Phillips 66, are expected to report much lower earnings per share (EPS) for the third quarter compared to the same time last year.
Valero, set to release its earnings on Thursday, is forecast to report an EPS of $1.01, down sharply from $7.49 a year ago, based on data from LSEG cited by Reuters. Marathon Petroleum is expected to see its EPS drop to $1.02 from last year’s $8.14, while Phillips 66 is projected to report $1.72, down from $4.63.
This decline in profits isn’t isolated to U.S. refiners. Earlier this month, several Europe-based integrated oil majors warned that lower refining margins would negatively impact their third-quarter earnings.
French oil and gas giant TotalEnergies announced that its downstream earnings are expected to “sharply decrease” due to much lower refining margins both in Europe and globally. BP has also cautioned that weak refining margins, coupled with poor oil trading results, will likely hit its Q3 profit. Similarly, Shell has flagged that lower refining margins and a loss in its chemicals business could weigh on its third-quarter results.
The refining industry appears to be exiting the boom of record profits and high margins that started after the pandemic recovery, along with supply disruptions caused by geopolitical events such as the war in Ukraine and sanctions.
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