* Marathon Petroleum, Western Refining and PBF Energy see
* Western Refining says margins improving as it accesses
* Western Refining shares up 4 pct, Marathon Petroleum up 2
By Swetha Gopinath
Aug 1 Marathon Petroleum Corp and rival
U.S. oil refiners are betting on new pipelines and higher
volumes to win back margins lost to the price shocks that led
many to record lower quarterly profits.
Marathon Petroleum's shares rose more than 2 percent in
early trading and Western Refining Inc was up 4 percent,
despite both reporting a decline in second-quarter margins due
to the higher costs of crude and mandatory ethanol credits.
U.S. refiners are being hurt by the rising cost of ethanol
credits, or Renewable Identification Numbers (RINs), which they
are required to purchase in order to meet blending targets set
by the U.S. Environmental Protection Agency.
Their margins have shrunk as discounts on U.S. crude
relative to the more expensive European benchmark have narrowed,
almost erasing a cost advantage that U.S. refiners had enjoyed
for nearly three years.
Analysts, however, expect these crude spreads to widen again
as extra pipeline capacity comes on stream to move Texas crude
to the Gulf Coast. Higher U.S. oil output will also offset crude
draws from the U.S. crude futures hub at Cushing, Oklahoma.
"On a short-term basis, refiners are going to see a
profitability squeeze from the narrowing spread," said John
Williams, investment analyst at T. Rowe Price. "But on a longer
time horizon, they will be able to make a little bit of money."
A bright spot for Marathon Petroleum was an increase in
refinery throughputs and sales volumes in the second quarter,
driven by its acquisition of the Galveston Bay refinery in Texas
from BP Plc.
This helped the company to report a better-than-expected
adjusted profit of $1.95 per share. Analysts on average had
forecast $1.93 per share, according to Thomson Reuters I/B/E/S.
But Marathon, the third-largest dedicated oil refiner in the
United States, also said its refining and marketing gross
margins almost halved to $6.18 per barrel in the second quarter.
U.S. refiners typically purchase low-cost U.S. crude and
sell refined products, such as gasoline and diesel, at prices
linked to the European benchmark, Brent.
But rising U.S. crude prices had narrowed the premium of
North Sea Brent to U.S. benchmark West Texas Intermediate to $2.67 on Wednesday. The premium was about $20 for
most of last year.
Further up the production chain, second-quarter results from
the world's oil majors have seen output targets abandoned,
profit targets missed and spending kept on a tight leash.
Thursday's slew of results saw Royal Dutch Shell
and Exxon Mobil disappoint analysts.
Western Refining, also hit by weaker margins, reported a 37
percent drop in second-quarter net profit.
But Western said its future refining margins would be
boosted by the launch of its Delaware Basin crude gathering
system, a source of low-cost crude for its refinery in Texas.
Morningstar analyst Allen Good said the long-term outlook
for the U.S. oil refining sector was positive.
"A lot of people realize that a lot of what we see now is
transitory; that the RIN costs and the crude differentials will
eventually abate," Good said.
The RIN credits have become costlier in recent months as
refiners fear a shortfall next year, drawing the ire of refiners
PBF Energy Inc, which also reported a lower
second-quarter profit, said it expects to spend more than $200
million on RINs this year - making the credits one of its most
expensive cost categories.
"It exceeds the salaries and wages we pay to operate all
three of our refineries," PBF Executive Chairman Tom O'Malley
said in a statement.
Coastal refiners such as PBF have taken to moving cheap
Bakken crude by rail. PBF said it expected to reach its full
capacity of rail-delivered crude by the end of 2014, and would
also run more imported crude if it made economic sense.
PBF also said it would contribute logistic assets to a
master limited partnership (MLP), joining other refiners -
including Phillips 66 and Tesoro Corp - in
creating MLPs to access capital markets and fund growth.
PBF's shares were at $22.68 on the New York Stock Exchange.
Marathon Petroleum shares were at $75.10, while Western Refining
was trading at $31.26.