By Nicole Jao
NEW YORK (Reuters) – Investors are sour on the U.S. oil refining sector, citing prospects for softer fuel demand and worries that President-elect Donald Trump could slap tariffs on crude imports.
US refiner profits began to decline towards the end of 2023 as new refining capacity came online and profits returned to normal levels. This followed two years of huge profits as refiners cashed in on supply shortages caused by Russia's attack on Ukraine and a recovery in demand after the pandemic.
Shares of major refiners have fallen this year, and on average, analysts have lowered expectations for refiners' fourth-quarter earnings before interest, taxes and amortization (EBITA) by 24% since the start of the quarter, Tudor, Pickering, Holt & Co. analyst Matthew Blair said in a note.
Blair noted a steady easing of gasoline crack spreads and low diesel cracks. Crack spread is the difference between the price of fuel and the price of crude oil. Blair also referred to higher refinery utilization.
US gasoline futures crack the cost of West Texas Intermediate (WTI) crude fell below $11 to a one-year low in December. Ultra-low sulfur diesel futures eased to a nearly two-month low below $22 during the month.
US refinery utilization averaged 90.3% in the fourth quarter, up from 87.6% in the same quarter last year, according to Tudor, Pickering, Holt & Co.
“Following a year of negative revisions, analysts are likely to continue bringing estimates lower in 2025 on the back of a weaker forward curve,” Jefferies analysts said in a note.
Valero shares slipped more than 6% in 2024, while rival Phillips 66 fell more than 15% during that period.
Shares of Marathon Petroleum 2024 closed down 8% for the year.
Analysts polled by Reuters in January lowered their stock price targets for all three refiners.
DIFFERENT DEMAND
Signs of slowing economic activity in the US and China, the top oil consumer and main importer, respectively, weighed heavily on oil and fuel markets last year.
The United States is the world's largest exporter of motor gasoline, supplying over 16% of total global exports, according to the US Energy Information Administration.
The International Energy Agency increased its 2025 global oil demand growth forecast to 1.1 million barrels per day (bpd) in December, up from 990,000 bpd last month. But he said the gains would continue to be led by countries in emerging economies in Asia, which are not strong markets for US refiners.
Moreover, global gasoline demand is expected to peak this year at around 28 million bpd amid a surge in electric vehicle adoption and improved vehicle efficiency, particularly in China, the world's largest oil importer, according to S&P Global Commodity Insights .