The three largest U.S. refiners have prioritized shareholder returns in the third quarter of 2023, distributing over $5.2 billion through stock buybacks and dividends, even as their profits took a hit from declining fuel demand and narrowing refining margins.
Profit Overview:
The average earnings per share for U.S. oil refiners dropped to 25 cents from $4.75 in the same quarter last year and $4.85 in 2022, reflecting a significant downturn in profitability.
The combined shareholder return of $5.2 billion in Q3 2023 is only slightly lower than the $5.9 billion returned in the previous quarter, but down from $6.5 billion a year ago and $6.81 billion two years prior.
Market Dynamics:
Refining margins for gasoline, diesel, and other products have decreased sharply from record highs observed after Russia’s invasion of Ukraine in 2022, compounded by softened fuel demand and new refining capacities coming online.
In September, the U.S. gasoline crack spread fell to $11.73 a barrel, the lowest since November 2023, while the diesel crack spread was at $17.98, its lowest since July 2021.
Individual Company Performance:
Marathon Petroleum returned $3 billion to shareholders and increased its share repurchase plan by $5 billion, with approximately $8.5 billion available under its buyback authorizations. CEO Maryann Mannen emphasized their commitment to leading capital returns through various market cycles.
Valero Energy returned $907 million to stockholders despite an 86% drop in profits, attributing the results to heavy maintenance during a period of weak margins. CEO Lane Riggs expressed optimism about future refining margins supported by export demand from Latin America.
Phillips 66 returned $1.3 billion to shareholders, although it faced challenges due to costs associated with the closure of its Los Angeles refinery, resulting in earnings decreasing to $346 million from $2.1 billion a year earlier.
Future Outlook:
Analysts predict that refining margins may remain weak in the fourth quarter, with some refiners potentially reducing share repurchases in response to lower earnings and cash flow.
TPH&Co’s Matthew Blair noted that the fourth quarter is expected to be challenging due to continued softness in gasoline and distillate margins.