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US Oil Refiners Brace for a Tough Year as Investor Sentiment Turns Negative

Reuters, January 15, 2025
Reuters

Investors are souring on the U.S. oil refining sector, citing forecasts for softer fuel demand and worries that President-elect Donald Trump may slap tariffs on imports of crude.

U.S. refiner profits started to fall toward the end of 2023 as new refining capacity came online and margins returned to normal levels. This followed two years of bumper profits as refiners cashed in on supply shortages caused by Russia's invasion of Ukraine and a post-pandemic recovery in demand.

Shares of major refiners have fallen this year, and on average, analysts have lowered expectations for refiners' fourth-quarter earnings before interest, taxes and amortization (EBITA) by 24% since the start of the quarter, Tudor, Pickering, Holt & Co analyst Matthew Blair said in a note.

Signs of slowing economic activity in the U.S. and China, the top oil consumer and top importer, respectively, weighed heavily on oil and fuel markets last year.

Moreover, global gasoline demand is expected to peak this year at around 28 million bpd amid surging electric vehicle adoption and improving vehicle efficiency, particularly in China, the world's largest oil importer, according to S&P Global Commodity Insights.

Investors are also uncertain about U.S. government policies as they await the inauguration of Trump, analysts also said.

Last month, Trump pledged to impose a 25% tariff on all imports from Canada and Mexico until they clamp down on drug trafficking and migration. Tariffs on oil importers would have a big impact on refiners that process Canadian, Mexican and other imported crude, forcing them to pay more for their feedstock.

"Margins are going to be weak until we get a clear picture regarding the direction of economic growth and tariffs on Canada," said Tortoise Capital portfolio manager Rob Thummel. "It'll be a challenging environment until then."


(Reporting by Nicole Jao; Editing by Liz Hampton and David Gregorio)

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