Sizzling Fuel Demand Sends Winter-Time Margins to Five-Year High

(Bloomberg) -- Fuel profit margins are soaring as demand continues to recover faster than supply, sparking a bonanza for U.S. refiners that just two years ago were struggling to break even on a barrel of oil.

The profit a refiner earns on turning crude into gasoline and diesel stands at the highest for this time of year since 2017. The Gulf Coast refining margin, or crackspread, is over $20 a barrel after dropping to a low of just $2.31 a barrel in May of 2020 as the global economy ground to a halt due to the coronavirus.

Distillate demand, which includes diesel and heating oil, is surging with truckers racking up more highway miles than before the pandemic and wintry weather across the northeast driving consumption for heating. Meanwhile, gasoline consumption is on track to reach summer 2019 levels, which was close to peak demand, Valero Energy Corp. Chief Commercial Officer Gary Simmons said in the company's most recent conference call.

Many of the nation's biggest refiners are shutting units as they perform maintenance that was pushed back in 2020 and 2021 to conserve cash during a period of low fuel demand. Some of the largest refiners on the Gulf Coast, including Valero Energy Corp. and TotalEnergies SE are among that group.

Energy Aspects forecasts that maintenance will take out about 1.42 million barrels a day of U.S. crude capacity January through April, a number likely to rise as unplanned outages occur, said David Tonyan, a Houston-based oil products analyst for the consultancy. By comparison, maintenance reduced crude capacity an average of 1.2 million barrels a day for the same period in 2015-2019.

Margins are high even taking into account the cost of environmental compliance, which has inflated refining profitability on paper over the past year.

Marathon Petroleum Corp., the largest U.S. refiner, expects to spend more money on turnarounds than usual in 2022, the company said Wednesday during its fourth-quarter earnings call.