Major U.S. oil refiners are widely expected to report stronger fourth-quarter earnings as product margins have firmed, industry analysts said. The uptick follows a period of reduced profits after 2022's peak results, when post-pandemic demand recovery and Russia's invasion of Ukraine pushed fuel prices sharply higher.
Analysts point to several technical and geopolitical factors that have bolstered margins. Tudor, Pickering, Holt & Co analyst Matthew Blair noted in a research note that diesel margins were particularly buoyed by Ukrainian drone strikes on Russian refineries, which removed volumes from global supply and supported prices for refined products.
At the same time, widening differentials for nearly every major crude grade versus benchmark Brent, combined with lower crude oil prices, have provided some relief for refining margins, Blair added.
Wall Street forecasters expect a marked improvement in per-share profits when refiner earnings begin arriving. LSEG estimates show Valero - the second-largest U.S. refiner by capacity - is due to report first, with analysts penciling in $3.27 in earnings per share for the quarter, compared with $0.64 a year earlier. Marathon Petroleum, the largest U.S. refiner by throughput, is estimated to post $3.01 per share versus $0.77 per share a year ago. Phillips 66 is forecast to return $2.19 per share, moving from a loss of $0.15 per share in the prior-year quarter, LSEG data show.
Beyond quarter-to-quarter margin dynamics, a recent political shift in Venezuela has attracted market attention for its potential to reroute crude flows. The U.S. military's ouster of Venezuelan President Nicolás Maduro earlier this month is expected to redirect the country's oil exports back toward the United States, a development that could benefit complex Gulf Coast refineries built to process heavy, lower-quality crudes.
TD Cowen analyst Jason Gabelman said markets are pricing in wider crude differentials as more Venezuelan barrels flow to the U.S. That would favor Gulf Coast refiners such as Valero, Marathon and Phillips 66, which operate facilities configured to handle heavy-grade crude typical of Venezuelan exports.
Investors will be pressing refining executives for specifics on three practical points: the capacity of Gulf Coast refineries to accept Venezuelan crude; the speed at which those refineries can start processing additional heavy barrels; and the degree to which increased Venezuelan supply will alter product and crude pricing, Simon Wong, a portfolio manager at Gabelli Funds, said.
Not all observers expect a rapid resolution. Ben Hoff, head of commodity research at Societe Generale, cautioned that Venezuelan production is "structurally challenged" and that ramping output is unlikely to be solved quickly. He said the market is likely to watch how the economics play out over time.
For the refining sector, the combination of product-margin support from supply disruptions, more favorable crude differentials and the prospect of Venezuelan heavy crude returning to U.S. Gulf Coast ports frames near-term expectations for stronger quarterly profits. Market participants will be listening closely to company commentary for concrete operational timelines and assessments of how shifting crude flows will affect refinery throughput and margins.