U.S. refiners may not be making the same kind of money they did in 2022 when demand was rebounding in the post-COVID world and supplies were disrupted following Russia’s invasion of Ukraine. But you wouldn’t know that from the looks of shareholder returns.
Top independent refiners Valero, Marathon and Phillips 66 are holding steadfast to a mantra of giving cash back to stockholders – something Wall Street pushed for in recent years following weak returns in the sector – regardless of lower profits.
Together, those three companies paid out some $5.5 billion to shareholders in the first quarter despite making combined profits of $2.93 billion. That compares with some $6.6 billion returned the same period a year ago on profits of $7.75 billion.
Even with lower year-on-year profits, these companies have been able to tap into cash to stay razor focused on returns, sector analysts told Reuters. They’re also not spending as much on growth projects and investing less in the refining space.
“Refiners experienced softer margins yet see resilient gasoline demand and still managed to return significant capital to shareholders via the dividend and share repurchases,” wrote Brian Kessens, a senior portfolio manager with investment firm Tortoise in a note this month.
Marathon alone paid out $2.5 billion to its shareholders in the first quarter and boosted its repurchase authorization by another $5 billion. This came as its refinery utilization was at just 82% for the quarter, down 9% from the previous quarter.
Valero returned some $1.4 billion in the quarter, while smaller rival HF Sinclair announced a new $1 billion buyback program.
So far, Wall Street seems pretty happy with what these oil refiners are doing. Shares of Valero are up more than 21% year-to-date, while Marathon is up about 18%. That outpaces the S&P Energy sector’s 11.7% increase this year.
Still, margins in the sector have been pressured lately, especially given weakness in global diesel markets and seasonally softer gasoline demand in the U.S. The four-week average for product-supplied of U.S. gasoline – a proxy for demand – was last reported at 8.7 million barrels per day (bpd), down from 9.1 million bpd year-on-year.
Weaker global diesel markets have also been hitting margins. Last month, European diesel markets signaled oversupply and slow demand as the three-month contango traded at its widest since August 2021. The four-week average of U.S. distillates supplied was at 3.6 million bpd, still under the 3.8 million bpd seen a year ago.
In Asia, refiners profits have fallen to their weakest level in seven months, and some have trimmed the volume of crude they are processing to reduce diesel output, a move that could help boost margins going forward.
