Wall Street Expects Weak Refining Profits in Q4

Wall Street is preparing for a sharp decline in U.S. refiners’ fourth-quarter earnings due to weaker fuel demand and potential tariffs on crude imports. Refining margins have fallen significantly from record highs in 2022, with lower gasoline and diesel prices cutting into profits.

Trump’s Tariff Plan Adds to Refiners’ Challenges

President Donald Trump’s proposed 25% tariff on crude imports from Canada and Mexico, set to take effect on February 1, could further pressure refiners by increasing crude costs. Canada remains the top U.S. oil supplier, providing over half of total crude imports. Refineries in the Midwest, which process 70% of Canadian crude, are particularly vulnerable.

Gasoline Prices and Crack Spreads Signal Lower Margins

U.S. gasoline retail prices fell for the second straight year in 2024, with lower summer demand contributing to rising inventories. The gasoline futures crack spread, a key refinery profit measure, dropped below $11 a barrel in December, its lowest in a year. Ultra-low sulfur diesel spreads also fell to a near two-month low of under $22 a barrel.

Earnings Forecasts Reflect Industry Slowdown

Analysts expect major U.S. refiners to report significantly lower Q4 earnings:

• Valero (VLO): Estimated profit of $0.07 per share, down from $3.55 last year.
• Marathon Petroleum (MPC): Expected $0.12 per share, down from $3.98 last year.
• Phillips 66: Forecasted -$0.23 per share, compared to $3.09 last year.

Oil majors Exxon Mobil and BP have already warned that weaker refining margins will dent their Q4 profits. Shares of Valero, Phillips 66, and Marathon Petroleum all saw declines in 2024.

Refiners Prepare for Tariff Impacts

Investors are looking for clarity on how refiners plan to navigate Trump’s tariffs. Some refiners stocked up on Canadian crude at year-end to mitigate cost increases. U.S. crude imports from Canada hit a record 4.42 million barrels per day in early January.

Refiners With High and Low Exposure to Canadian Crude

• Higher Exposure: HF Sinclair, Phillips 66, and Par Pacific Holdings rely more on Canadian crude.
• Lower Exposure: Delek and Valero have less reliance, reducing their tariff risk.

Uncertainty Looms Over the Sector

With softening fuel demand, declining refining margins, and looming tariffs, Wall Street remains cautious on the refining sector. Investors will closely watch upcoming earnings calls for insight into how refiners plan to adapt to these challenges.