U.S. refiners expected to post higher earnings for third-quarter

Oct 18 Reuters - U.S. refiners are expected to show higher earnings for the third quarter as margins on selling gasoline and diesel have improved despite the surging cost of crude oil, analysts said.

After more than a year of depressed fuel demand, gasoline and distillate consumption is back in line with five-year averages in the United States, the world's largest fuel consumer. That has boosted margins on refined products to more than double what these companies were making at the time a year ago.

The seven largest independent U.S. refinery companies, including giants Marathon Petroleum and Valero Energy, are projected to post an average earnings-per-share gain of 66 cents versus a loss of $1.32 for the third quarter of 2020, according to IBES data from Refinitiv. com USA-REFINERIES EARNINGS-OUTLOOK mopanjqyzva Those gains are driven by the 3 - 2 - 1 crack spread, a proxy for refining margins, which assumes a barrel of crude oil is refined to three parts gasoline, two parts diesel and one part jet fuel. The spread is currently $21 per barrel, compared to around $9 a year ago.

Energy demand recovered quickly from the worst days of the pandemic in 2020, and crude oil prices and Brent are peaking at multi-year highs in recent days. But product demand has also increased, and that has helped to boost margins.

Product supplied - a proxy for U.S. refined product demand - was 21.5 million barrels of barrels per day in the most recent week, slightly higher than the same period in 2019, prior to the onset of the pandemic, according to the U.S. Energy Information Administration EIA The market is back in equilibrium, Credit Suisse analyst Manav Gupta said in a note.

Refiners are also benefiting from lower inventories of their products as previous storms and the pandemic knocked refining capacity offline. Since the start of the pandemic, Approximately 2.5 million barrels per day of refining capacity has been closed, which is almost four times the 10-year average, according to Credit Suisse analyst Gupta.

Delta Air Lines refinery in Monroe, Pennsylvania, earned nearly $100 million last quarter with a first positive result since the first quarter of 2020, according to figures released last week. Tudor Pickering Holt analysts cited solid gasoline and diesel crack spreads as helping the refiner recover from the recovery.

Jet fuel demand is still below pre-pandemic levels, but international flights are expected to resume in November to Europe. The spot price of U.S. Gulf Coast kerosene-type jet fuel is $2,10 dollars per gallon, the highest since October 2018, despite demand still 12% below 2018 levels, according to EIA data.

Analysts have also raised estimates for refiners such as PBF Energy and Hollyfrontier due to the recent decrease in the costs of complying with the nation's biofuels laws. Refiners are required to buy ethanol into the nation's gasoline pool or blend credits for others who can.

The cost of those credits sharply declined in the third quarter. Reuters reported in September that the U.S. Environmental Protection Agency is expected to recommend revisions to federal biofuel blend requirements for 2021 to below 2020 levels, according to analysts.