U.S. Oil Refiners Are More Profitable Than Before The Pandemic

The top U.S. refiners have posted record quarterly profits this year amid high refining margins and reduced operational capacity in America, more than recovering the hefty losses from 2020, when the pandemic hit fuel demand.

The biggest refiners, Marathon Petroleum, Valero, and Phillips 66, have raked in more cash flows this year than in 2019, an analysis of financial reports by Reuters shows.  

Their share prices have also jumped this year, with Valero up by 42% so far in 2022, Marathon Petroleum up 45%, and Phillips 66 rising by 25% year to date.  

The top U.S. refiners reported slightly lower profits and refining margins for the third quarter compared to the record-breaking earnings for the second quarter. Yet, the Q3 earnings and refining margins were still much higher than in 2021 and the pre-pandemic levels. For example, Valero’s refining margin per barrel was at $21.34 for the third quarter, double the $10.07 margin for the same quarter last year. Marathon Petroleum’s refining and marketing margin more than doubled to $30.21 per barrel from $14.51 per barrel.

“Refining fundamentals remain strong as product demand through our system has surpassed 2019 levels, while global product supply remains constrained due to capacity reductions and high natural gas prices in Europe are setting a higher floor on margins,” Valero’s chairman and CEO Joe Gorder said in the Q3 release. 

Earnings at the U.S. refiners are likely headed lower next year, compared to the record levels in 2022, Fitch Ratings said in a report last month. The rating agency expects U.S. refining crack spreads to fall by between 30% and 50% next year from unsustainably high current levels, “driven by refiner output mix adjustments, increasing Chinese exports, global refining capacity additions and weaker global economic growth.”

Most U.S. refiners rated by Fitch “are building cash with excess profits, presumably to preserve liquidity ahead of a likely decline in cash flows towards normalized levels.”  “However, M&A and share buybacks are the most common capital use within our coverage, after building cash,” the rating agency noted.