US Refiners Profit From Global Fuel Shortages Amid Geopolitical Tensions

Key facts

• US refiners are capitalizing on global fuel shortages, particularly for diesel and gasoline.
• Geopolitical events, including the Iran war and attacks on Russian refineries, have constrained global supply.
• Marathon Petroleum, Valero Energy, and Phillips 66 reported record or near-record profits in the second quarter.
• The US diesel crack spread reached an all-time high of $102.20 per barrel.
• The Energy sector has shown the strongest earnings and revenue growth among S&P 500 sectors.

U.S. refiners are experiencing an extraordinary earnings season, driven by global fuel shortages exacerbated by geopolitical tensions. Despite a drop in crude oil prices, the lack of refined fuels, particularly diesel and gasoline, has led to record utilization rates and soaring crack spreads for American companies.

Global refinery throughput in July was significantly below year-earlier levels due to constraints in the Middle East and disruptions in Russia. This has created an opportunity for U.S. refiners to fill the supply gap, increasing exports and benefiting from historically high refining margins. The U.S. diesel crack spread recently hit an all-time high of $102.20 per barrel.

This surge in profitability is reflected in the stock performance of major refiners. Marathon Petroleum, Valero Energy, and Phillips 66 have seen substantial year-to-date gains, significantly outperforming the broader S&P 500 Energy sector. The Energy sector as a whole has delivered the strongest earnings and revenue growth among all S&P 500 sectors in the second quarter.

Marathon Petroleum, the largest U.S. refiner, reported a more than fourfold increase in second-quarter earnings, driven by record refining margins and high utilization rates. The company also benefits from its midstream subsidiary, MPLX. Phillips 66 also saw a nearly 300% jump in adjusted earnings, alongside strong performance in its midstream segment and efforts to reduce debt. Chevron reported its best quarter in six years, with strong contributions from both upstream and downstream operations, and has captured significant synergies from its Hess acquisition ahead of schedule. Valero Energy posted a record profit, boosted by both its refining and renewable diesel businesses, and has seen several Wall Street firms raise their price targets.

These companies are returning significant cash to shareholders through dividends and share buybacks while also investing in infrastructure and exploring new production opportunities.