MPC down 0ver 25% the last few weeks .Company upbeat but concerns remain about possible recession. Crack spreads and demand falling.
From WSJ
By Jinjoo Lee The business of turning crude oil into fuel is still very lucrative for U.S. refiners, but recent declines in pump prices and refiner profitability elsewhere are casting a cloud over their outlook. The plunge has been especially notable for distillates, which are used for diesel and jet fuel. Ultralow sulfur diesel is roughly $2.21 a gallon in New York Harbor, down 33% year to date. Distillate cracks on the Gulf Coast -- the spread between the price of crude oil and the price of distillate product -- have declined to $18.41 a barrel, down 70% year to date. In a worrying sign, refining margins also have plummeted recently in Asia. After adjusting for freight, crude mix and processing costs, refiners in Singapore are making a loss approaching $10 per barrel -- more than double the loss they saw on average in the comparable period between 2015 and 2019, according to data compiled by Goldman Sachs. Is this an indicator of what is to come for U.S. refiners? Industry giants Valero Energy and Marathon Petroleum don't think so. On Marathon's earnings call on Tuesday, Rick Hessling, senior vice president of global feedstocks, said the company actually sees weakening margins in Asia and Europe as a bullish sign for U.S. crack spreads if it means global refiners with higher costs start cutting back on refinery runs. Valero's chief commercial officer, Gary Simmons, said on the company's earnings call last week that weakening margins abroad are an indicator that U.S. margins are at a floor. That would be positive for U.S. refiners because their margins are still strong: Valero made about $22.37 of gross profit per barrel last quarter, 168% higher than during the first quarter of 2019, the last comparable prepandemic period. A recent tailwind has been a further drop in natural-gas prices, which helps bring down the cost of refineries' energy-intensive operations. Whether that barrel-half-full view proves true will depend on how robust fuel demand turns out to be this summer. The refiners themselves are optimistic. In ExxonMobil's earnings call last Friday, Chief Executive Darren Woods said that gasoline demand looks "pretty reasonable" and that jet demand is expected to be fairly healthy in the summer. "My view is we're going to see the typical push-up in the summer and see margins rise." Valero's Mr. Simmons noted on the company's earnings call that the company isn't seeing any indication of demand weakness today. Some industry indicators are starting to look wobbly, though. Notably, U.S. trucking demand has plummeted recently, as have container imports destined for trucks and trains. RBC Capital Markets, which previously estimated that daily flight counts in China would hit pre-Covid levels in late April to early May 2023, now projects that this won't happen until August. The bank also said in a report that its leading indicators of future travel and mobility in the U.S. were "inflecting sharply lower," with car-rental and air-travel search interest down by 17.1% and 12.2%, respectively, in early April compared with a year earlier. Meanwhile, global supply is moving in the wrong direction for refiners: RBC Capital Markets expects 1.5 million barrels a day of new refining capacity to come online this year, and another 2.4 million barrels a day of capacity to follow in 2024. That would be the largest two-year period of net new refining capacity dating back 45 years, according to the bank. A lot is riding on this summer's driving season. Write to Justin Lahart at Justin.Lahart@wsj.com Corrections and Amplifications This article was corrected at 8:46 a.m. ET because it had an incorrect byline of Justin Lahart. The article was written by Jinjoo Lee. (END) Dow Jones Newswires May 04, 2023 08:00 ET (12:00 GMT)