By Nicole Jao
NEW YORK (Reuters) – Wall Street is bracing for a pointy decline in U.S. oil refiners’ fourth-quarter profits as fuel demand softened, while in search of 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 fee of crude.
U.S. gasoline retail prices decreased for the second consecutive yr in 2024. Weaker demand for the transport fuel, probably the most consumed oil product within the U.S., throughout the summer of 2024 in comparison with 2023 helped to construct inventories. Within the second half of 2024, prices averaged 10% lower than within the second half of 2023, based on 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 an almost two-month low of under $22 a barrel throughout the month.
“Refining margins have really come off the boil rather a lot and crack spreads are quite low,” said Stewart Glickman, equity research analyst at CFRA Research. “We expect earnings performance within the fourth quarter to be pretty tepid,” he said.
Valero (VLO), the second-largest U.S. refiner by capability, is ready to kick off refiner earnings on Thursday, with analysts forecasting profits of seven cents per share, down from $3.55 per share a yr ago, based on data from LSEG.
Marathon Petroleum (MPC), which is the highest U.S. refiner by volume, is forecast to report per share profit of 12 cents, compared with $3.98 per share a yr ago, LSEG estimated.
Phillips 66 is predicted to report earnings of negative 23 cents per share, compared with $3.09 per share a yr ago, based on LSEG estimates.
Oil majors BP (BP) and Exxon Mobil (XOM) earlier this month signaled that weaker refining margins within the fourth quarter would also dent their profits.
Shares of Valero slipped greater than 6% in 2024, while Phillips 66 fell greater than 15% during that period.
Shares of Marathon Petroleum closed 2024 down 8% for the yr.
Investors are also keen to listen to from U.S. refiners within the earnings season on how they’re 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.