Wall Street Anticipates Decline in Refiners' Q4 Earnings Amidst Softening Fuel Demand and Proposed Tariffs

New York, NY - The impending release of fourth-quarter earnings reports by U.S. oil refiners has sparked concerns among analysts and investors. The sector is bracing for a significant decline in profits as fuel demand wanes and uncertainty lingers over the potential impact of proposed tariffs on Canadian and Mexican crude imports.

Softening Demand Weighed on Earnings

In 2022, record profits fueled by post-pandemic recovery and geopolitical tensions drove refiners' earnings to exceptional levels. However, demand has since slowed, eroding margins. According to the U.S. Energy Information Administration (EIA), gasoline retail prices in 2024 declined for the second consecutive year, reflecting weaker demand for transportation fuel.

Proposed Tariffs Pose Additional Challenge

The looming 25% tariff on crude imports from Canada and Mexico, if implemented on February 1st, could exacerbate the decline in refiners' profits by increasing the cost of crude. Canada has consistently been the primary source of U.S. oil imports for over two decades, accounting for over half of the total in 2023.

Earnings Forecast Disappointing

Analysts expect dismal earnings performance when Valero, the second-largest U.S. refiner, reports its results on Thursday. Forecasts suggest a profit of 7 cents per share, a steep decline from $3.55 per share a year ago. Industry giant Marathon Petroleum is also expected to fare poorly, with projected earnings of 12 cents per share compared to $3.98 last year. Phillips 66 anticipates a net loss of 23 cents per share.

Investor Focus on Tariff Mitigation Strategies

Investors are eager to learn how refiners are preparing for the potential impact of tariffs. U.S. refining facilities heavily rely on heavier oil grades from Canada and Mexico. Some have reportedly been accumulating Canadian crude to buffer against any disruptions caused by the tariffs.

Key Refiners with Exposure to Canadian Crude

Analysts from TD Cowen have identified HF Sinclair, Phillips 66, and Par Pacific Holdings as refiners with elevated exposure to Canadian crude. Delek and Valero, on the other hand, have relatively limited exposure.