U.S. oil refiners looking at 'record' Q1 profits ahead of peak summer season

By Claudia Assis

Top picks include Valero, PBF, Marathon

U.S. oil refiners are expected to report "record" quarterly profits during a traditionally weak season, analysts at BofA Securities said in a note Thursday, calling it a "golden age of refining."

The analysts on average raised their first-quarter earnings expectations for refiners by 9%, thanks to a "strong finish" for crack spreads, or the difference between crude oil futures prices and prices for gasoline and other refined products.

"We find a single trend for all names under coverage: record 1Q23 earnings for what is normally the lowest seasonal earnings of the year and a set-up we see potentially supporting continued strength in the run up to the driving season," the analysts, led by Doug Leggate, said in the note.

BofA said refiners Valero Energy Corp. (VLO) and PBF Energy Inc. (PBF) continue to enjoy the "the best leverage to a robust refining environment."

For its turn, Marathon Petroleum Corp. (MPC) offers the "most robust buyback program in energy, with more than a third of shares repurchased since 2021, with no slowdown in sight," the analysts said.

Refined products have seen the highest seasonal demand in five years and for gasoline and jet fuel the highest absolute demand since the start of the pandemic, the BofA analysts said.

"With retail gasoline prices holding around $3.50/gal, we continue to expect the first 'normal' driving season since COVID, but with over 1mm bpd of net refinery closures increasing US dependency on gasoline imports, particularly on the US East Coast," they said.

Refiner stocks have lost ground this week, reeling from Saudi Arabia and its OPEC+ allies surprising markets last weekend by announcing another round of production cuts, prompting a rally for crude futures

For the last 12 months, however, the stocks far outperform an energy ETF and the broader equity market.

Shares of Valero are up 28% in the period, while shares of Marathon gained 51%. PBF stock is up 56%. That compares with an advance of 12% for the SPDR Energy Select ETF (XLE), and contrasts with losses of around 8% for the S&P 500 index .

-Claudia Assis

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04-08-23 1609ET

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