By Nicole Jao
NEW YORK (Reuters) - U.S refiners' first quarter profits are expected to fall from recent records, when earnings soared following Russia's invasion of Ukraine in 2022, but overall will continue to draw support from disruptions in Russia and heavy refinery maintenance.
Looking ahead, earnings are expected to be a fraction of the record levels but will rise in the coming months as demand picks up, analysts said.
In the first quarter, margins were bolstered by outages at Russian refineries. Ukrainian drone attacks had shut about 14% of Russia's refining capacity as of the end of the quarter.
"It is going to be another really strong quarter," said TD Cowen analyst Jason Gabelman. War-related supply disruptions remain critical for investors when assessing the flow trajectory for refining margins, he added.
In the U.S., refiners faced both planned and unplanned maintenance, including an outage in February at BP (NYSE:BP)'s 435,000 barrels per day refinery in Whiting, Indiana.
Overall U.S. refinery utilization rates fell to 80% during February, compared with roughly 87% in the prior year period, according to the U.S. Energy Information Administration (EIA).
A better demand outlook, as well as solid product cracks are also expected to drive refinery gains in the first quarter, according to Matthew Blair, managing director at TPH&Co. In March, the increase in gasoline prices boosted gasoline crack spreads to their highest since August 2023.
Valero Energy (NYSE:VLO), the second-largest U.S. refiner by capacity, is set to kick off refiner earnings on Thursday, with analysts forecasting profits of $3.24 per share, down from $8.27 a year ago, according to data from LSEG.
Shares of Valero are up 28% year-to-date.
Marathon Petroleum (NYSE:MPC), the top U.S. refiner by volume, is forecast to report per share profit of $2.39, compared to $6.09 a year ago, according to LSEG estimates.
Phillips 66 (NYSE:PSX), which reports on Friday, is expected to report earnings per share of $2.17, compared to $4.21 a year ago, according to LSEG estimates.
Earnings are expected to rise in the next two quarters as demand picks up headed into the summer driving season, LSEG data shows.
Gasoline prices could rise by as much as 15 cents per gallon due to disruptions in Russia, while unplanned plant outages or other unexpected supply shocks could push prices over $4 a gallon for the first time since 2022, according to Patrick De Haan, a petroleum analyst at GasBuddy.com."We expect some modest improvement quarter over quarter as refiners move into the stronger part of the year," said TD Cowen's Gabelman.