U.S. refiners are projected to experience a decline in their first-quarter profits compared to the exceptional earnings they reported in recent quarters, primarily driven by disruptions stemming from the Russia-Ukraine conflict and extensive refinery maintenance. However, analysts anticipate that earnings will rebound in the subsequent months as demand for refined products increases during the summer driving season.
In the first quarter, refining margins remained elevated due to outages at Russian refineries. Additionally, drone attacks originating from Ukraine had incapacitated approximately 14% of Russia’s refining capacity by the end of the quarter.
In the United States, refiners contended with planned and unplanned maintenance activities, including an outage at BP’s 435,000 barrels per day refinery in Whiting, Indiana, during February. As a result, U.S. refinery utilization rates declined to 80% in February, compared to approximately 87% during the same period the previous year.
Analysts anticipate that improving demand and favorable product cracks will further contribute to refinery gains in the first quarter. Valero Energy, the second-largest U.S. refiner by capacity, is scheduled to release its earnings report on Thursday. Analysts forecast profits of $3.24 per share, marking a decrease from the $8.27 per share reported a year ago. Marathon Petroleum, the largest U.S. refiner by volume, is expected to report per-share earnings of $2.39, a decline from the $6.09 per share reported in the previous year. Additionally, Phillips 66 is projected to report earnings per share of $2.17, compared to $4.21 per share in the previous year.
As demand strengthens in preparation for the summer driving season, earnings are anticipated to rise in the following two quarters. Nonetheless, uncertainties remain, as gasoline prices could potentially increase by up to 15 cents per gallon due to the disruptions in Russia. Unforeseen plant outages or other unexpected supply shocks could further push prices over $4 per gallon for the first time since 2022.
