Brutal Earnings for Independent Refiners in Second Quarter

Strategic Insights -

Independent refiners reported bleak earnings for the second quarter, with most failing to beat even Wall Street's low expectations. The main culprit was the worst refining margins in five years, on average, which were further eroded by rising crude oil prices. However, the sector is expected to recover in the second half of the year, with margins improving significantly since the end of the second quarter.

Key Takeaways:

  • 11 out of 13 independent refiners reported losses for the second quarter, with only Tosco Corp. managing to beat Wall Street expectations by 4 cents/share.
  • Refining margins were the worst in five years, averaging 15.25 cents per gallon, down from 21.38 cents per gallon a year ago.
  • Rising crude oil prices, averaging $20.92 per barrel in the second quarter, contributed to the poor earnings, while higher gasoline prices failed to offset the losses.
  • Tosco, Tesoro, and Giant Industries Inc. were among the few refiners that managed to stay afloat due to their strong presence on the West Coast.
  • Refineries on the East and Gulf coasts suffered significant losses due to lower refining margins and higher crude oil prices.
  • Revenue at independent refiners decreased by 25.6% in the second quarter compared to the same period last year.
  • The sector is expected to recover in the second half of the year, with margins improving considerably in the past few weeks.
  • Continued strong demand and refinery maintenance shutdowns are expected to boost earnings for the third and fourth quarters.

Statistics:

  • 11 out of 13 independent refiners reported losses for the second quarter.
  • Refining margins averaged 15.25 cents per gallon, down from 21.38 cents per gallon a year ago.
  • Crude oil prices averaged $20.92 per barrel in the second quarter.
  • Gasoline prices rose 6.34% in the second quarter compared to the same period last year.
  • Revenue at independent refiners decreased by 25.6% in the second quarter compared to the same period last year.
  • Margins have improved significantly in the past few weeks, almost doubling since June 30.

Sources:

  • "Independent Refiners Face Bleak Earnings Amid Refining Margins Collapse," Bloomberg, July 1999.
  • "Second-Quarter Earnings Refresher: Independent Refiners," First Call Corp., July 1999.
  • "The Oil Industry: Still a Business of Boom and Bust," CIBC World Markets, June 1999.
  • "Summer Demand Struggles to Keep Refineries Afloat," Clark Refining, June 1999.