Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Oklahoma. -Reuters
US refiners ran full-tilt in the second quarter, fueled by cheap domestic crude and fat margins that should boost earnings, though their heavy activity could eventually saturate the market with gasoline, sapping profits down the road.
US independent refiners, including Phillips 66 and Marathon Petroleum Corp, are expected to announce strong results due to the heavy discounts for US and Canadian crude, along with strong fuel demand and lower costs to comply with the nation's biofuel laws, analysts said.
Strong crack spreads - the margin on turning crude oil into diesel, gasoline and other products - have spurred refiners to keep production high. That margin averaged about $21.07 per barrel in the second quarter, its highest since 2015.
Among the largest independent refiners, Mara-thon, CVR Energy, and Hollyfrontier Corp rank in the top 10 percent in Thomson Reuters analyst revisions models, which weighs recent changes in estimates for revenue and per-share earnings, suggesting positive trends headed into reporting season for refiners, which begins next week.
The discount on crude prices in Midland, Texas widened by nearly $10 a barrel against benchmark futures during the second quarter, as production in the Permian surged beyond pipeline capacity to move oil out of the region. Increased export demand also led to high utilization rates, a positive, said Sandeep Sayal, vice president in the refining and marketing group at IHS Markit.
The United States exported about 5.1 million barrels per day (bpd) of products through the second quarter, according to data from the US Energy Information Administration.
Refinery utilization rates hit their highest levels since 2005 in June as they processed record amounts of crude oil in June, according to the EIA.
However, high utilization rates could lead to oversupply of gasoline in the coming months, which would dampen refiners' future profit margins.
-Reuters, New York
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