In the dynamic landscape of U.S. refining, the first quarter of 2024 showcased a notable resilience in profit margins despite a dip from the previous year’s unprecedented highs. These highs were initially propelled by the geopolitical disruptions following Russia’s invasion of Ukraine in 2022. While current earnings are not matching those record levels, industry analysts anticipate a robust improvement in the coming months as global demand for oil products is expected to surge.
The resilience in refinery margins this quarter can largely be attributed to several factors, including ongoing disruptions in Russian refinery operations due to Ukrainian drone attacks, which have knocked out approximately 14% of Russia’s refining capacity. Furthermore, both planned and unexpected maintenance activities have affected U.S. refineries, notably including a significant outage at BP’s Whiting refinery in Indiana. Despite these challenges, overall U.S. refinery utilization dipped only slightly to 80% from 87% the previous year, per the U.S. Energy Information Administration.
Industry experts like Matthew Blair, Managing Director at TPH&Co, highlight the positive demand outlook and solid product cracks as key drivers for refinery gains. March saw a spike in gasoline prices, pushing gasoline crack spreads to their highest levels since August of the previous year. This trend is underscored by the strong performance of major refiners like Valero Energy and Marathon Petroleum, whose shares and earnings, though lower year-on-year, suggest a steady market recovery.
Looking forward, the sector is poised for further gains as the summer driving season approaches, which traditionally boosts demand for gasoline. Analysts from LSEG predict a rise in gasoline prices by up to 15 cents per gallon due to ongoing Russian supply disruptions, with the potential for prices to exceed $4 a gallon under certain conditions, such as unplanned plant outages.
This promising outlook for the U.S. refining sector, with expected quarter-over-quarter improvements, underscores a market adapting to global challenges while maintaining strong operational performance. One Oak Partners recognizes the strategic importance of these developments, as they provide critical insights for stakeholders in the energy and investment sectors.
