MOSCOW (MRC) -- U.S. refiners are girding for a painful slate of fourth-quarter earnings, reflecting the pressure of rising crude prices, weak demand due to renewed COVID-19 travel restrictions, and higher costs of associated with blending of renewable fuels into their products, said Hydrocarbonprocessing.
Seven U.S. independent refiners are projected to post an average earnings-per-share loss of USD1.51, down from a loss of USD1.06 in the third quarter of 2020, according to IBES data from Refinitiv. Both Credit Suisse and Tudor Pickering Holt cut lowered the price estimates of every U.S. independent refiner for the fourth quarter.
In the fourth quarter, independent refiners including Marathon Petroleum, Valero Energy and Phillips 66 coped with uneven demand due to a resurgence of coronavirus cases worldwide. Consumption of liquid fuels globally is estimated to have fallen by 9 million barrels per day in 2020, according to the U.S. Energy Information Administration.
Crude oil benchmarks rallied more than 20% in the quarter, which squeezed U.S. refining margins to less than USD10 a barrel on average - the threshold for which most refiners make money - for the majority of the fourth quarter. Meanwhile, tougher restrictions on socializing and businesses clamped down on traffic in states like California, the most populous U.S. state and one of the largest driving markets in the world. Travel on U.S. roads fell by 11% in November from the year-ago period, after a 9% drop in October, according to the U.S. Transportation Department.
Lockdowns in various European countries suppressed international flights and jet fuel demand in the quarter. Delta Airlines' refinery in Trainer, Pennsylvania, in early January posted a USD102 million refining segment loss in the fourth quarter, and a USD441 million loss on third party fuel sales.
In the fourth quarter, refiners also had to pay more for U.S. renewable fuel credits, which reached a three-year high earlier this month. The cost for Renewable Identification Numbers - the credits used for compliance with U.S. biofuels blending laws - increased by 47 cents per barrel from the third quarter due to rising ethanol and biodiesel prices.
Refiners are required, by law, to blend biofuels into their gasoline pool, or pay up so others can do the same. The pandemic has reduced blending activity generally, and as a result, fewer credits have been issued, increasing their costs. Credit Suisse analyst Manav Gupta said Phillips 66 will lose USD1.16 per share in the quarter. He had originally anticipated a 30-cent loss, but changed that due to lower refining earnings in the Gulf Coast, West Coast and Midwest markets.
"Sales will also see earnings down as crude price rose sharply quarter over quarter and lockdowns impacted volumes," said Gupta in a note. U.S. refining margins started to improve around the holiday season, and were around USD12.50 per barrel. Refining rates rose last week to their highest since March, government data showed. However, at about 80% of capacity, refiners are producing approximately 2 million fewer barrels than at the same time last year.
"While refiners may be getting paid the same amount for gasoline as last year, it's on much lower production," said Bob Yawger, director for energy market futures at Mizuho.
As per MRC, top oil exporter Saudi Arabia has cut supplies of February-loading crude for some Asian buyer by up to a quarter while meeting requirements of at least four others. This comes after Saudi Arabia pledged additional voluntary output cuts of 1 million barrels per day (bpd) in February and March under a deal between the Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+.
As MRC wrote previously, Formosa Petrochemical Corporation (FPCC) was running its crackers in Taiwan at 100% capacity utilisation in end-December, 2020. The company"s crackers have combined ethylene production capacity of 2.935 million metric tons/year. Meanwhile, FPCC is planning overhaul of the smallest cracker in mid-2021.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC"s DataScope report, PE imports to Russia decreased in January-November 2020 by 17% year on year and reached 569,900 tonnes. High density polyethylene (HDPE) accounted for the greatest reduction in imports. At the same time, PP imports into Russia increased by 21% year on year to about 202,000 tonnes in the first eleven months of 2020. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.