US refiners may see Q2 profit recover on stronger diesel margins

Investors expect top U.S. refining companies to report higher profits in the second quarter, rebounding from losses experienced during the first three month of the year. This is due to unseasonably high diesel margins that boost earnings. Fuel producers have made unexpected profits in the last few months from key products. This is a welcome respite from earnings that had fallen from record levels set in 2022 when demand increased after the COVID-19 outbreak and Russia's invasion in Ukraine.

Several forecasting groups predicted lower margins for this year, as the demand was expected slow down. Analysts expect profits to be lower than last year, even though they are expecting a rebound from the previous quarter. Jason Gabelman, TD Cowen analyst, said that refining companies are up by 20% so far this year. Gabelman stated that product margins may hold high levels until maintenance in autumn. Matthew Blair, an analyst at TPH & Co, said that diesel cracks were $17 per barrel on average during the second quarter. This was in line with what they were in the first quarter. However, the price ended the three-month span higher, at $21 per barrel.

Blair stated that U.S. distillate stocks reached a five-year low in early May due to exports and improved demand which helped margins.

U.S. distillate yields are also low, probably due to lighter crude.

Valero is the second largest U.S. refiner based on capacity. Analysts are forecasting a profit per share of $1.75, down from $2.71 a share a year earlier, according to LSEG data.

LSEG estimates that Marathon Petroleum, which is the largest refiner in the United States by volume, will report a profit per share of $3.28 compared to $4.12 a year earlier.

According to LSEG estimates, Phillips 66 will report a profit per share of $1.69, compared to $2.31 a share a year earlier.

Both Phillips 66 and Marathon reported losses for the first quarter.

(source: Reuters)