By Laura Sanicola
NEW YORK (Reuters) – U.S. refiners are girding for a painful slate of fourth-quarter earnings, reflecting the stress of rising crude costs, weak demand as a consequence of renewed COVID-19 journey restrictions, and better prices of related to mixing of renewable fuels into their merchandise.
Seven U.S. impartial refiners are projected to publish a mean earnings-per-share lack of $1.51, down from a lack of $1.06 within the third quarter of 2020, in line with IBES knowledge from Refinitiv.
Each Credit score Suisse (SIX:) and Tudor Pickering Holt lower lowered the worth estimates of each U.S. impartial refiner for the fourth quarter.
“[This] would mark the weakest quarter of the 12 months,” stated Matthew Blair, analyst at Tudor Pickering Holt and Co.
Within the fourth quarter, impartial refiners together with Marathon Petroleum (NYSE:), Valero Power (NYSE:) and Phillips 66 (NYSE:) coped with uneven demand as a consequence of a resurgence of coronavirus circumstances worldwide.
Consumption of liquid fuels globally is estimated to have fallen by 9 million barrels per day in 2020, in line with the U.S. Power Data Administration.
benchmarks rallied greater than 20% within the quarter, which squeezed U.S. refining margins to lower than $10 a barrel on common – the edge for which most refiners make cash – for almost all of the fourth quarter.
In the meantime, more durable restrictions on socializing and companies clamped down on site visitors in states like California, probably the most populous U.S. state and one of many largest driving markets on this planet. Journey on U.S. roads fell by 11% in November from the year-ago interval, after a 9% drop in October, in line with the U.S. Transportation Division.
Lockdowns in varied European international locations suppressed worldwide flights and jet gasoline demand within the quarter.
Delta Airways (NYSE:)’ refinery in Coach, Pennsylvania, in early January posted a $102 million refining phase loss within the fourth quarter, and a $441 million loss on third celebration gasoline gross sales.
Within the fourth quarter, refiners additionally needed to pay extra for U.S. renewable gasoline credit, which reached a three-year excessive earlier this month. The fee for Renewable Identification Numbers – the credit used for compliance with U.S. biofuels mixing legal guidelines – elevated by 47 cents per barrel from the third quarter as a consequence of rising ethanol and biodiesel costs.
Refiners are required, by legislation, to mix biofuels into their gasoline pool, or pay up so others can do the identical. The pandemic has decreased mixing exercise typically, and in consequence, fewer credit have been issued, rising their prices.
Credit score Suisse analyst Manav Gupta stated Phillips 66 will lose $1.16 per share within the quarter. He had initially anticipated a 30-cent loss, however modified that as a consequence of decrease refining earnings within the Gulf Coast, West Coast and Midwest markets.
“Gross sales may even see earnings down as crude worth rose sharply quarter over quarter and lockdowns impacted volumes,” stated Gupta in a word.
U.S. refining margins began to enhance across the vacation season, and had been round $12.50 per barrel. Refining charges rose final week to their highest since March, authorities knowledge confirmed. Nevertheless, at about 80% of capability, refiners are producing roughly 2 million fewer barrels than on the similar time final 12 months.
“Whereas refiners could also be getting paid the identical quantity for gasoline as final 12 months, it is on a lot decrease manufacturing,” stated Bob Yawger, director for vitality market futures at Mizuho.