First-quarter profits for U.S. refiners are anticipated to decrease from recent record highs, which were driven by the aftermath of Russia’s invasion of Ukraine in 2022. However, overall profitability is expected to continue benefiting from disruptions in Russia and extensive refinery maintenance. Analysts project that while first-quarter earnings will be a fraction of the record levels, they will improve in the coming months as demand rebounds.
During the first quarter, margins were supported by disruptions at Russian refineries, with Ukrainian drone attacks leading to the shutdown of approximately 14% of Russia’s refining capacity by the end of the quarter. “It is going to be another really strong quarter,” remarked TD Cowen analyst Jason Gabelman, emphasizing the critical role of war-related supply disruptions in shaping the trajectory of refining margins for investors.
In the U.S., refiners encountered both planned and unplanned maintenance, including an outage at BP’s 435,000 barrels per day refinery in Whiting, Indiana, in February. The overall refinery utilization rates in the U.S. dropped to 80% in February, compared to approximately 87% in the same period the previous year, according to the U.S. Energy Information Administration (EIA).
A positive demand outlook, along with robust product cracks, is also expected to drive refinery gains in the first quarter, as highlighted by Matthew Blair, managing director at TPH&Co. The increase in gasoline prices in March led to the highest gasoline crack spreads since August 2023.
Valero Energy, the second-largest U.S. refiner by capacity, is set to initiate refiner earnings on Thursday, with analysts anticipating profits of $3.24 per share, down from $8.27 a year ago. Similarly, Marathon Petroleum and Phillips 66 are forecasted to report lower per share profits compared to the previous year.
Looking ahead, earnings are projected to rise in the next two quarters as demand picks up heading into the summer driving season. Gasoline prices could potentially increase by as much as 15 cents per gallon due to disruptions in Russia, while unforeseen plant outages or supply shocks could push prices over $4 a gallon for the first time since 2022, according to petroleum analyst Patrick De Haan.
“We expect some modest improvement quarter over quarter as refiners move into the stronger part of the year,” added TD Cowen’s Gabelman.