As oil prices rebound and many producers rally, U.S. refiners are getting hit hard.
Profits from processing crude into gasoline and diesel are narrowing as refiners confront the double whammy of rising costs and a gasoline supply glut that’s keeping prices at the pump cheap.
The Bloomberg Intelligence North America Refining & Marketing index fell as much as 4.9 percent on Monday to the lowest since 2012, extending its decline this year to more than 35 percent. Marathon Petroleum Corp. slumped as much as 6.7 percent, and is down by more than 30 percent for the year. Valero Energy Corp. lost more than 4 percent, bringing this year’s decline to 28 percent.
Refiners, which had benefited from soaring demand and cheap oil last year, now face a crude price rally of more than 85 percent from this year’s low, while gasoline stockpiles are at their highest seasonal level in 20 years. The uptick in oil prices has led investors to sell off refiners and shift instead to oil producers, said Justin Jenkins, an analyst at Raymond James.
“There’s a whole lot of negativity and not much optimism,” he said. “It wouldn’t surprise me to continue to see the group underperform.”
While the Energy Information Administration predicts gasoline demand will hit a new record this summer, inventories at a seasonal high have kept average pump prices at their lowest since 2005 for this time of year, according to AAA data compiled by Bloomberg. Gasoline margins have declined to less than $16 a barrel, from more than $21 about three weeks ago, according to data compiled by Bloomberg.
It’s likely the companies will continue to feel the pinch, but investors’ mindset can shift even “if things are just a little less bad,” Jenkins said.
“The day-to-day fundamentals can shift rapidly,” he said, “and so can sentiment surrounding it.”