U.S. refiners post profit surge as war-driven fuel prices lift margins

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U.S. refiners profit surge

Highlights

Eight independent U.S. refiners expect combined revenues of $325.5 billion for 2023, up from $242.9 billion a year earlier, driven by record crack spreads.
Valero, Marathon Petroleum, and Phillips 66 are projected to earn net incomes of $8.7 billion, $10.9 billion, and $7.9 billion respectively in the six months to September.
U.S. refinery output hit a five-year high of 17.4 million barrels a day in August, with exports rising to 2.8 million barrels daily amid policy debates on export bans and windfall taxes.

Profit gains build as refining margins widen

As reported by Financial Times, revenues for the eight independent U.S. refiners are forecast at $325.5 billion, compared with $242.9 billion a year earlier, based on second-quarter company results and Wall Street expectations for the third quarter.

The jump comes as higher crude costs are more than offset by stronger prices for refined products, driving crack spreads to record levels. Arne Skjæveland, an analyst at Rystad Energy, says the disruption to fuel supplies from conflicts in the Middle East and Russia is causing a drastic change in financial performance, with margins nearing levels last seen during the 2022 energy crisis.

The three largest independent refiners, Valero, Marathon Petroleum and Phillips 66, are expected to generate net income of $8.7 billion, $10.9 billion and $7.9 billion respectively in the six months to the end of September. All eight refiners are also expected to remain profitable in the third quarter as they raise output to record levels to cover a global shortfall in diesel and other fuels.

High output and export growth sharpen policy debate

U.S. refinery output reaches a five-year high of 17.4 million barrels a day in August, with plants operating above 95% of capacity for 15 straight weeks, the longest such stretch since 1998, according to Rystad Energy. Exports of diesel, petrol, jet fuel and naphtha rise to 2.8 million barrels a day from 2.3 million a year earlier as buyers in Europe and Latin America seek alternatives to constrained supplies from the Middle East and Russia.

Integrated oil groups are also benefiting. Chevron reports its highest quarterly profit on record in the three months to the end of June, while ExxonMobil posts its strongest quarterly profit since 2022.

The earnings boost is intensifying calls for intervention in Washington, including a diesel export ban or a windfall tax on oil profits. Democrats are pushing the Big Oil Windfall Profits Tax Act, while some Republican lawmakers from agricultural states support export restrictions in hopes of lowering fuel costs for farmers.

The Trump administration is considering options to address surging diesel and petrol prices ahead of the November midterm elections, but it has so far resisted an export ban. Energy analysts warn such a move could lead refiners to cut production and raise prices for other fuels, while the American Petroleum Institute says refiners are already operating near maximum capacity and that current pricing reflects severe global supply disruption rather than company conduct.

Our earlier coverage of the U.S. naval buildup in the Middle East explained how rising military activity and expanded sanctions on Iran heightened fears of supply disruption, pushing Brent and WTI sharply higher. We also noted that Washington was preparing additional deployments and outlining timelines for carrier group movements as tensions with Iran stayed elevated heading into the midterms.

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