U.S. refiners are facing dramatic loses in their fourth quarter earning margins, as the market is still pressured from the covid-19 pandemic, by weakened demand due to traveling restrictions and higher costs associated with their biofuels blending obligations.
Seven of U.S. independent refiners are expected to report average earnings-per-share losses of $1,51; down from a prior loss of $1,06 in the 3Q of 2020, according to IBES data. Agency’s estimates are of a deeper loss for refiners in 4Q reports.
“This would mark the weakest quarter of the year,” said Tudor Pickering Holt analyst, Matthew Blair, from one of the agency’s which predicted lower recovery margins for refiners, quoted by Reuters.
As we have reported previously, the covid-19 pandemic and its “second wave” have been hitting the oil and gas market once again, as lockdown periods are mandated from governments to contain the spread.
Oil prices were hit last week due to fears of China having a second lockdown, as China’s growing demand and imports have been a crucial factor for oil prices recovery. As for refiners, dropped gasoline prices, on top of the biofuels push, are among the principal factors for their financial losses.
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Refiners facing capacity drops
In early December, the Energy Information Administration informed that the U.S. petroleum refining capacity had dropped to a 4-year low record of 18,4 million barrels per calendar day, a level not seen since 2016.
This behavior was directly related to lower petroleum subproducts demand; and the competitiveness that cleaner alternatives, like renewable diesel, have gained in front of fossil fuels. On the other hand, the oil prices rally, of more than 20% in one quarter, squeezed refiners’ margins to less than 10%.
EIA also informed that liquid fuels consumption globally had fallen by 9 million barrels per day during the last year. According to the U.S. Transportation Department, travel by roads in the U.S. fell 11% in November, after a 9% drop in October, directly related to traveling restrictions.
Traveling by plane also dropped, and with it, jet fuel demand. According to Reuters, Delta Airline’s refinery in Pennsylvania, in early January reported a $102 million loss in its refining segment for the 4Q; plus a $441 million loss attributable to third party fuels sales.
This behavior is expected to continue as the pandemic has virtually every market at suspense. Nevertheless, experts consider that margins have improved with the holiday season, as refining margins increased to an average of $12,50 per barrel.