| NEW YORK
NEW YORK Oct 19 U.S. independent refiners such
as PBF Energy and Phillips 66 are expected to
report another quarter of disappointing profits in coming weeks,
as hopes that a record summer driving season would turn the
industry's fortunes around do not appear to have materialized.
U.S. refiners are in the midst of their worst year since the
shale boom began in 2011. High fuel inventories have punished
margins this year, forcing some refiners to voluntarily cut
production, delay capital work, lay off workers and slash
With margins expected to remain under pressure, relief is
not coming anytime soon, analysts say. Overall supply levels are
still elevated, and the cost to meet U.S. renewable fuel
standards will drag on profits for the remainder of the year.
Earnings expectations have been falling over the last month
for an index of nine independent refiners that are part of the
S&P 500. Over the last 30 days, the forecast for the third
quarter has dropped by 3.8 percent on average, according to
StarMine, a unit of Thomson Reuters.
"2016 is probably a lost year for the U.S. refining
industry," Barclays analyst Paul Cheng said.
The benchmark U.S. crack spread <CL321-1=R, a key measure of
margins, steadied in the third quarter, falling about 2 percent
after crashing more than 22 percent in the second quarter.
Motorists hit U.S. roads in record numbers over the summer,
but the demand was not enough to deplete the massive buildup in
gasoline inventories that existed heading into the summer
driving season. Those inventories - the result of overproduction
last winter - hurt margins.
Heading into the winter, distillate stocks are at their
highest seasonally since 2010. Refiners built up distillate
stocks over the summer as they pushed their plants to pump out
The U.S. refining industry has widely blamed its economic
misfortunes on the country's renewable fuel program, which
forces refiners to either blend biofuels like ethanol into their
fuel pool or buy renewable fuel credits. The fuel credits, known
as renewable identification numbers, or RINs, have jumped in
price this year.
Delta Air Lines opened the earnings season last
week, reporting a $45 million loss at its Monroe Energy refinery
for the third quarter, versus a $106 million profit a year ago.
The company is expecting the refinery to lose more than $100
million this year, versus more than $300 million in profits last
Delta, which does not have a blending operation and must buy
credits for the fuel it produces, said it spent $48 million in
the third quarter on RINs, nearly triple what it paid last year.
Another local refinery, Philadelphia Energy Solutions,
blamed the rising cost of RINs for its decision to lay off up to
100 non-union employees and slash benefits.
In May, Marathon Petroleum laid off 46 employees at
its Galveston Bay refinery in Texas.
Standalone refineries like PES and Monroe will continue to
struggle in the Northeast because they have little advantage
over international rivals and face tougher environmental
obligations at home, Sandy Fielden, director of research,
commodities and energy at Morningstar in Austin, Texas, said in
a report due Wednesday.
"U.S. refiner margins as a whole are lower in 2016 versus
2015 and Q4 is not likely to be different with higher crude
prices and soft product prices due to higher inventories," he
The U.S. Energy Information Administration expects this
winter to be about 18 percent colder than last year's
historically mild season.
(Reporting by Jarrett Renshaw and Devika Krishna Kumar in New
York; Editing by Leslie Adler)