U.S. refiners' years-long windfall from cheap crude ends in first quarter

By Kristen Hays
A refinery worker walks down the outside of a storage tank at a key gasoline-making unit at a PBF Energy Inc refinery in Delaware City, Delaware August 21, 2015. REUTERS/Charles Mostoller

By Kristen Hays

HOUSTON (Reuters) - U.S. refiners' years-long boom from cheap and plentiful crude ground to a halt in the first quarter as swelling oil inventories and weak demand pushed revenues to their lowest in years and punished profits, results showed on Thursday.

PBF Energy Inc and CVR Energy reported quarterly losses of $66.5 million and $68 million, respectively, while Marathon Petroleum Corp eked out a $1 million profit after reporting earnings of almost $900 million a year earlier.

Each reported their weakest revenue in at least four years, reflecting the depth of the pain even as they cling to hopes of a rebound during the U.S. driving season, the busiest period of the year for demand.

In essence, refiners paid the price for ramping up production in 2015 to chase healthy crack spreads that led to higher inventories and weaker margins earlier this year as demand slackened during the mild winter.

Economic uncertainty in the sharpest oil rout in a generation also thinned distillate demand.

"They were incentivized to run at higher rates and put more barrels in inventory. That's the overhang we're seeing right now," CVR Chief Executive Jack Lipinski told analysts on Thursday.

Distillate and gasoline inventories in the United States have risen to near record highs and crack spreads, the difference between the prices of crude oil and refined products, hit their weakest in years.

That forced refiners to voluntarily lower output in the most widespread cuts since the global financial crisis.

PBF, an East Coast-centric refiner with plants in Texas and Ohio as well, also grappled with downtime at its Delaware plant because of a weather-related power outage in January.

Then PBF moved up maintenance work in Delaware that had been slated for March "given the prevailing market conditions," Chief Executive Tom Nimbley said on Thursday.

CVR moved up planned work at its Kansas refinery in February after Midwest cash gasoline crack spreads went negative for several days earlier in the month. That meant wholesale selling prices were lower than what refiners paid for crude.

Some struck an upbeat note about the second quarter.

Nimbley said he is "bullish" on gasoline and octane, as U.S. driving continues to grow even as high product inventory could slow the margin growth.

"Low gasoline prices will help balance inventories, and we do expect margins to improve as we head into the driving season," CVR's Lipinski said.

Phillips 66 is slated to report first-quarter results on Friday, and Valero Energy Corp, the nation's largest refiner, and others next week.

(Additional reporting by Jarrett Renshaw in New York; Editing by James Dalgleish)