By Nicole Jao
NEW YORK (Reuters) – Investors are souring on the U.S. oil refining sector, citing forecasts for softer fuel demand and worries that President-elect Donald Trump may slap tariffs on imports of crude.
U.S. refiner profits began to fall toward the top of 2023 as latest refining capability got here online and margins returned to normal levels. This followed two years of bumper profits as refiners cashed in on supply shortages brought on by Russia’s invasion of Ukraine and a post-pandemic recovery in demand.
Shares of major refiners have fallen this 12 months, and on average, analysts have lowered expectations for refiners’ fourth-quarter earnings before interest, taxes and amortization (EBITA) by 24% for the reason that start of the quarter, Tudor, Pickering, Holt & Co analyst Matthew Blair said in a note.
Blair noted the easing of gasoline crack spreads and persistently low diesel cracks. A crack spread is the difference between the worth of a fuel and the worth of crude oil. Blair also cited higher refinery utilization.
The U.S. gasoline futures crack spread over the price of West Texas Intermediate (WTI) crude fell below $11 to a one-year low in December. The ultra-low sulphur diesel futures crack spread eased to a near two-month low of under $22 throughout the month.
U.S. refining utilization averaged 90.3% within the fourth quarter, up from 87.6% in the identical quarter last 12 months, in accordance with Tudor, Pickering, Holt & Co.
“Following a 12 months of negative revisions, analysts are more likely to proceed bringing estimates lower in 2025 on the back of a weaker forward curve,” Jefferies analysts said in a note.
Shares of Valero slipped greater than 6% in 2024, while rival Phillips 66 fell greater than 15% during that period.
Shares of Marathon Petroleum closed 2024 down 8% for the 12 months.
Analysts polled by Reuters in January lowered their stock goal price for all three refiners.
WEAKER DEMAND
Signs of slowing economic activity within the U.S. and China, the highest oil consumer and top importer, respectively, weighed heavily on oil and fuel markets last 12 months.
The U.S. is the world’s largest exporter of motor gasoline, supplying over 16% of total global exports, in accordance with the U.S. 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 it surely said the gains would proceed to be led by countries in emerging economies in Asia, which will not be strong markets for U.S. refiners.
Furthermore, global gasoline demand is anticipated to peak this 12 months at around 28 million bpd amid surging electric vehicle adoption and improving vehicle efficiency, particularly in China, the world’s largest oil importer, in accordance with S&P Global Commodity Insights.