In a year marked by various obstacles, the U.S. refining industry is expected to witness a decline in profits compared to the record levels achieved in the previous year. However, despite the challenges, refiners are anticipated to maintain relatively robust earnings.
The refining sector faced significant disruptions during the pandemic as plant closings and geopolitical events boosted margins. Despite the challenges, refiners capitalized on favorable pricing and robust demand, which helped them weather the storm.
However, as economic activity slowed and global refining capacity increased, the market experienced a decline from its peak in the previous year. One of the factors impacting refiners in the United States was OPEC+’s decision to reduce oil production in the second quarter. In response, refiners purchased inexpensive heavy, sour cargoes to increase fuel sales profits.
Wintertime shortages of distillate fuels also had an impact on the industry, driving up the price of jet fuel. Fortunately, the situation has since improved, leading to the restoration of crude differentials and jet premiums to historical levels.
Despite these positive developments, refiners encountered difficulties with large fuel-producing units at key facilities in Texas and New Jersey, significantly limiting their potential profits. Additionally, data from IIR Energy indicates that there were more unscheduled disruptions in June 2023 compared to the same period in the previous year, further adding to the industry’s challenges.
Major players in the U.S. refining sector, such as Valero Energy, Marathon Petroleum, and Phillips 66, are expected to report lower earnings per share compared to the previous year. Exxon also reported decreased operating results in its gasoline and diesel businesses due to lower refining margins.
The refining industry’s outlook is not without hurdles. While maintaining a high crack spread could be advantageous for refiners, new refining capacity in Asia and the Middle East, along with weakening diesel demand, pose significant challenges to the industry’s profitability and growth.