U.S. oil refiners set for first profit since onset of pandemic

July 28 (Reuters) – U.S. oil refineries are expected to post their first quarterly profit since the COVID-19 pandemic, despite higher oil prices and weaker margins in June taming analyst optimism fueled by the recovery in fuel demand.

Gasoline and diesel fuel demand in the US has recovered almost to 2019 levels after the collapse in travel and business activity during the worst coronavirus pandemic in 2020, oil prices, which rose 48% this year.

The three leading independent U.S. refineries – Valero Energy Corp (VLO.N), Phillips 66 (PSX.N), and Marathon Petroleum Corp (MPC.N) – are expected to post total net profits of approximately $ 675 million in the second quarter .

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

“There are concerns that the second quarter of this year could be peak earnings for the group,” said Cowen and co-analyst Jason Gabelman.

US crude oil was up nearly 24% in the quarter, and while transportation fuel prices tended to rise at the same time, prices for other products like naphtha, asphalt, and propane tended to lag behind the rise, depressing margins.

The US Energy Information Administration earlier this month forecast US liquid fuel consumption to increase by 1.5 million barrels per day in 2021 from 2020. Gasoline product shipped rebounded in the second quarter to levels not seen since the pandemic began became.

That makes analysts optimistic about upcoming reports after the top three refineries lost $ 1.3 billion in the first quarter, according to data from Refinitiv IBES. Valero reports his gains on Thursday, followed by the other two next week.

Going forward, the proliferation of the highly transmissible COVID-19 Delta variant threatens the nascent recovery in travel, with the United States saying this week it will not lift any existing travel restrictions “at this point in time”.

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

BIOFUEL MIXTURE HIT

In the second quarter, adding ethanol to gasoline also hurt margins, as the price of the corn-based fuel came at a rare premium over gasoline, analysts said.

Refineries also had to pay more for U.S. renewable fuel credits, which hit a record $ 2 for the quarter. The cost of Renewable Identification Numbers (RINs) – the credits used to help comply with U.S. biofuel blending laws – increased 22 cents each, from $ 1.32 at the end of the first quarter to 1.54 US dollars in late June.

Refineries are required by law to add or pay for biofuels to their gasoline pool so that others can do the same. The pandemic has generally reduced blending activities and as a result, fewer loans have been issued, increasing their costs.

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

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

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

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