Oct 18 (Reuters) - U.S. refiners are expected to show higher
earnings for the third quarter as margins to sell gasoline and
diesel have improved despite the surging cost of crude oil,
After more than a year of depressed fuel demand, gasoline
and distillate consumption is back in line with five-year
averages in the United States, the world's largest fuel
consumer. That has boosted margins on refined products to more
than double what those companies were making at this time a year
The seven largest independent U.S. refining companies,
including giants Marathon Petroleum and Valero Energy
, are projected to post an average earnings-per-share
gain of 66 cents, versus a loss of $1.32 for the third quarter
of 2020, according to IBES data from Refinitiv. (GRAPHIC: https://graphics.reuters.com/USA-REFINERIES/EARNINGS-OUTLOOK/mopanjqyzva/)
Those gains are driven by the 3-2-1 crack spread, a proxy
for refining margins, which assumes a barrel of crude oil is
refined to three parts gasoline, two parts diesel and one part
jet fuel. That spread is currently at $21 per barrel, compared
with around $9 a year ago. <CL321-1=R>
Energy demand has recovered swiftly from the worst days of
the pandemic in 2020, and Brent and U.S. crude oil prices have
reached multi-year highs in recent days. But product demand has
also increased, and that has helped boost margins.
Product supplied - a proxy for U.S. refined product demand -
was 21.5 million barrels per day in the most recent week,
slightly higher than the same period in 2019, prior to the onset
of the pandemic, according to the U.S. Energy Information
"The market is getting back in equilibrium," Credit Suisse
analyst Manav Gupta said in a note.
Refiners are also benefiting from lower inventories of their
products as recent storms and the pandemic knocked refining
capacity offline. Approximately 2.5 million barrels per day of
refining capacity has been shut since the start of the pandemic,
which is almost four times the 10-year average, according to
Credit Suisse's Gupta.
Delta Air Lines' refinery in Monroe, Pennsylvania, earned
nearly $100 million last quarter, its first positive results
since the first quarter of 2020, according to figures released
last week. Tudor Pickering Holt analysts cited strong gasoline
and diesel crack spreads as helping the refiner recover.
Jet fuel demand is still below pre-pandemic levels, but
international flights are expected to resume to Europe in
November. The spot price of U.S. Gulf Coast kerosene-type jet
fuel is $2.10 dollars per gallon, the highest since October
2018, despite demand still 12% below 2018 levels, per EIA data.
Analysts have also been raising estimates for refiners such
as PBF Energy and Hollyfrontier due to declining costs of
complying with the nation's biofuels laws. Refiners are required
to blend ethanol into the nation's gasoline pool or buy credits
for others who can.
The cost of those credits declined sharply in the third
quarter. Reuters reported in September that the U.S.
Environmental Protection Agency is expected to recommend
reducing federal biofuel blending mandates for 2021 to below
2020 levels, according to analysts.
(Reporting by Laura Sanicola; Editing by Daniel Wallis)