DM Monitoring
NEW YORK: U.S. refiners are girding for a painful slate of fourth-quarter earnings, reflecting the pressure of rising crude prices, weak demand due to renewed COVID-19 travel restrictions, and higher costs of associated with blending of renewable fuels into their products. Seven U.S. independent refiners are projected to post an average earnings-per-share loss of $1.51, down from a loss of $1.06 in the third quarter of 2020, according to IBES data from Refinitiv. Both Credit Suisse and Tudor Pickering Holt cut lowered the price estimates of every U.S. independent refiner for the fourth quarter.
“[This] would mark the weakest quarter of the year,” said Matthew Blair, analyst at Tudor Pickering Holt and Co. In the fourth quarter, independent refiners including Marathon Petroleum, Valero Energy and Phillips 66 coped with uneven demand due to a resurgence of coronavirus cases worldwide.
Consumption of liquid fuels globally is estimated to have fallen by 9 million barrels per day in 2020, according to the U.S. Energy Information Administration. Crude oil benchmarks rallied more than 20% in the quarter, which squeezed U.S. refining margins to less than $10 a barrel on average – the threshold for which most refiners make money – for the majority of the fourth quarter. Meanwhile, tougher restrictions on socializing and businesses clamped down on traffic in states like California, the most populous U.S. state and one of the largest driving markets in the world. Travel on U.S. roads fell by 11% in November from the year-ago period, after a 9% drop in October, according to the U.S. Transportation Department.
Lockdowns in various European countries suppressed international flights and jet fuel demand in the quarter. Delta Airlines’ refinery in Trainer, Pennsylvania, in early January posted a $102 million refining segment loss in the fourth quarter, and a $441 million loss on third party fuel sales. In the fourth quarter, refiners also had to pay more for U.S. renewable fuel credits, which reached a three-year high earlier this month. The cost for Renewable Identification Numbers – the credits used for compliance with U.S. biofuels blending laws – increased by 47 cents per barrel from the third quarter due to rising ethanol and biodiesel prices.
