By Nicole Jao
NEW YORK (Reuters) – Traders are souring on the U.S. oil refining sector, citing forecasts for softer gas demand and worries that President-elect Donald Trump could slap tariffs on imports of crude.
U.S. refiner income began to fall towards the tip of 2023 as new refining capability got here on-line and margins returned to regular ranges. This adopted two years of bumper income as refiners cashed in on provide shortages attributable to Russia’s invasion of Ukraine and a post-pandemic restoration in demand.
Shares of main refiners have fallen this yr, and on common, analysts have lowered expectations for refiners’ fourth-quarter earnings earlier than curiosity, taxes and amortization (EBITA) by 24% because the begin of the quarter, Tudor, Pickering, Holt & Co analyst Matthew Blair stated in a notice.
Blair famous the easing of gasoline crack spreads and persistently low diesel cracks. A crack unfold is the distinction between the value of a gas and the value of crude oil. Blair additionally cited larger refinery utilization.
The U.S. gasoline futures crack unfold over the price of West Texas Intermediate (WTI) crude fell beneath $11 to a one-year low in December. The ultra-low sulphur diesel futures crack unfold eased to a close to two-month low of underneath $22 throughout the month.
U.S. refining utilization averaged 90.3% within the fourth quarter, up from 87.6% in the identical quarter final yr, based on Tudor, Pickering, Holt & Co.
“Following a yr of unfavourable revisions, analysts are more likely to proceed bringing estimates decrease in 2025 on the again of a weaker ahead curve,” Jefferies analysts stated in a notice.
Shares of Valero slipped greater than 6% in 2024, whereas rival Phillips 66 fell greater than 15% throughout that interval.
Shares of Marathon Petroleum closed 2024 down 8% for the yr.
Analysts polled by Reuters in January lowered their inventory goal worth for all three refiners.
WEAKER DEMAND
Indicators of slowing financial exercise within the U.S. and China, the highest oil shopper and high importer, respectively, weighed closely on oil and gas markets final yr.
The U.S. is the world’s largest exporter of motor gasoline, supplying over 16% of whole international exports, based on the U.S. Power Info Administration.
The Worldwide Power Company elevated its 2025 international oil demand progress forecast to 1.1 million barrels per day (bpd) in December, up from 990,000 bpd final month. However it stated the positive aspects would proceed to be led by nations in rising economies in Asia, which aren’t robust markets for U.S. refiners.
Furthermore, international gasoline demand is anticipated to peak this yr at round 28 million bpd amid surging electrical car adoption and enhancing car effectivity, significantly in China, the world’s largest oil importer, based on S&P World Commodity Insights.
