KEY POINTS
- US refiners return $5.2 billion to shareholders despite weaker Q3 margins.
- Average Q3 earnings per share dropped significantly from last year.
- Analysts forecast continued pressure on refining margins through year-end.
US refiners boosted shareholder yields through strong buybacks and dividends paying out $5.2bln in Q3, when profits fell on lower refining margins.
The sector was able to significantly decrease margins for fuel products, thus, decreasing from the maximum levels achieved after the 2022 Ukraine crisis. This despite slow economic expansion and increased fuel consumption inducing a new refining capacity additions and softening fuel demand.
Refiners face profit pressure but sustain payouts
Top refiners Marathon Petroleum, Valero Energy, and Phillips 66 maintained their commitment to shareholder returns even as profits shrank. Combined, they paid $5.2 billion to shareholders through buybacks and dividends, a slight decrease from the $5.9 billion returned in the prior quarter and down from $6.5 billion during the same period last year.
Marathon Petroleum led the way with $3 billion in payouts and increased its buyback program by $5 billion. CEO Maryann Mannen reaffirmed the company’s long-term focus on capital returns, expressing confidence in the resilience of refining fundamentals despite recent volatility.
In Q3, the average earnings per share for refiners dropped to 25 cents from $4.75 a year earlier, reflecting the impact of weakened margins.
Analysts expect the fourth quarter to present further challenges, especially as fuel crack spreads, the difference between crude oil and refined product prices, remain weak. Valero, for example, reported an 86 percent drop in Q3 profit but upheld its payout commitments.
According to Reuters, CEO Lane Riggs pointed to heavy maintenance and weak market conditions but noted the potential support from export demand in Latin America and low product inventories.
Future outlook for refining margins and shareholder returns
Phillips 66, which returned $1.3 billion to shareholders, is also navigating increased expenses, including those linked to its planned Los Angeles refinery closure. The Houston-based company saw a substantial earnings decline, down to $346 million from $2.1 billion the previous year.
Refining margins are expected to remain subdued over the medium term, although observers think that entities such as Valero, Phillips 66, and Marathon will do all they can to meet their shareholder returns targets.
Experts expect that gasoline and diesel spreads may be below average returns as far as the fourth quarter meaning a possible deceleration of shares buybacks if cash flow and earning deteriorates.
