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U.S. oil refiners beat Wall Street forecasts

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For 2023, three of the biggest U.S. independent refiners – Marathon Petroleum, Phillips 66, and Valero Energy – posted combined adjusted earnings of $25.7 billion

Major U.S. oil refiners beat Wall Street’s earnings expectations in the fourth quarter on strong refining margins and operating performance, and they forecasted profits would rise again this year thanks to global demand growth.

For 2023, three of the biggest U.S. independent refiners – Marathon Petroleum, Phillips 66, and Valero Energy – posted combined adjusted earnings of $25.7 billion. While that beat forecasts, it was down from combined profits of $33.9 billion in 2022, when market disruptions from sanctions on Russia’s energy industry resulted in record earnings.

Shares of Marathon are 11% higher YTD, Phillips 66 is nearly 9% higher and Valero has added 8%, far outpacing the S&P 500 energy sector’s marginal drop so far this year.

Investors have turned positive on refiners and metrics, particularly for gasoline demand, look good, said Matthew Blair, a refining analyst at Tudor, Pickering, Holt & Co, in an interview.

Marathon posted a profit of $2.24 per share last quarter, while Phillips 66 earned $3.09 per share and Valero posted a profit of $3.55 per share.

Refiners gained from lower prices for U.S. crude oil during the quarter after attacks in the Red Sea drove up freight costs. Crude prices are the biggest cost for refiners who process oil into transportation fuels, heating oil and other products.

We had a period of time where you could export from the U.S. Gulf Coast to Northwest Europe crude in the low $2 a barrel range. That rose to $6 a barrel, said Gary Simmons, COO for Valero.

For our system, that is an advantage because it gives us a crude cost advantage versus our global rivals, he said.

Valero saw margins of $33 a barrel for ultra-low sulfur diesel in the U.S. midcontinent and north Atlantic and $24 a barrel on the Gulf Coast during the quarter.

For its part, Phillips 66 saw margins of $14.41 a barrel in Q4, down from $19.73 a barrel the same period last year as fuel prices dropped.

The firm raised its yield of clean products by 2% to its highest levels since 2017.

U.S. crude is at almost a $5 a barrel discount to the European Brent benchmark. The discount is expected to remain wide if tensions rise in the Middle East.

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