By Nicole Jao
NEW YORK (Reuters) – Wall Street is bracing for a sharp decline in U.S. oil refiners’ fourth-quarter profits as fuel demand softened, while seeking clarity on the sector’s preparations for President Donald Trump’s threatened tariffs on crude imports from Canada and Mexico.
U.S. refiners have seen earnings slide from record levels in 2022, when a recovery in demand following the COVID-19 pandemic and Russia’s invasion of Ukraine drove up fuel prices.
That demand has since slowed, and now Trump’s promise to set a 25% tariff on oil imports from Canada and Mexico by Feb. 1 could further hit profits by driving up the cost of crude.
U.S. gasoline retail prices decreased for the second consecutive year in 2024. Weaker demand for the transport fuel, the most consumed oil product in the U.S., during the summer of 2024 compared to 2023 helped to build inventories. In the second half of 2024, prices averaged 10% lower than in the second half of 2023, according to the U.S. Energy Information Administration (EIA).
The U.S. gasoline futures crack spread, or price difference with the U.S. benchmark West Texas Intermediate crude, which is a theoretical measure of a refinery’s profit margin, fell below $11 a barrel to a one-year low in December.
The ultra-low sulfur diesel futures crack spread eased to a nearly two-month low of under $22 a barrel during the month.
“Refining margins have really come off the boil a lot and crack spreads are quite low,” said Stewart Glickman, equity research analyst at CFRA Research. “We expect earnings performance in the fourth quarter to be pretty tepid,” he said.
Valero (VLO), the second-largest U.S. refiner by capacity, is set to kick off refiner earnings on Thursday, with analysts forecasting profits of 7 cents per share, down from $3.55 per share a year ago, according to data from LSEG.
Marathon Petroleum (MPC), which is the top U.S. refiner by volume, is forecast to report per share profit of 12 cents, compared with $3.98 per share a year ago, LSEG estimated.
Phillips 66 is expected to report earnings of negative 23 cents per share, compared with $3.09 per share a year ago, according to LSEG estimates.
Oil majors BP (BP) and Exxon Mobil (XOM) earlier this month signaled that weaker refining margins in the fourth quarter would also dent their profits.
Shares of Valero slipped more than 6% in 2024, while Phillips 66 fell more than 15% during that period.
Shares of Marathon Petroleum closed 2024 down 8% for the year.
Investors are also keen to hear from U.S. refiners in the earnings season on how they are preparing for the potential impact of the tariffs on imports from Canada and Mexico, which the White House on Tuesday said Trump still planned to go ahead with on Feb. 1.
