November 14, 2022 [energyintel] – US downstream players expect extremely strong refining margins to persist, with the floor for midcycle earnings moving higher amid a stubbornly tight market.
Executives with independent refiner HF Sinclair (formerly HollyFrontier) explained during the company’s third-quarter earnings presentation on Monday that the current downstream environment virtually dictates strong results.
“We’re in a structurally short market,” said HF Sinclair COO Timothy Go, citing a wave of downstream rationalization in North America and disruptions to supply and trade flows in the wake of Russia’s invasion of Ukraine. “As you look forward, it’s hard to see that changing significantly … the structural short is going to continue for quite some time, really until you get into 2024, when you start seeing the Mexico or Nigeria refinery start up.”
That dynamic will help inure refiners from the impacts of cyclical patters and macroeconomic conditions.
“We do believe structurally … you’re going to have probably not as much investment in the fossil fuel industry — in particular, refining going forward at the time when everybody is trying to understand exactly how the balances are going to work,” said Valero Energy COO Lane Riggs during the company’s third-quarter earnings presentation. “But our view is [there] will be a higher call on refining capacity … we do believe the next midcycle will be higher than the last midcycle.”
Go echoed Riggs’ sentiments almost verbatim.
“We think refining margins will continue to deliver above midcycle returns here for the foreseeable future,” he said. “Our refineries are producing as much as they can right now, and still having trouble keeping inventories full.”
Transition Delayed
That dynamic could help put the brakes on the energy transition as well, Go warned.
“The energy transition … is really proving out to be more of a long-term thing, right? With the high inflation that we’re seeing right now, [it’s] only going to slow down continued investments in green technology. And so we see that demand for our products will continue to be strong,” he said.
HF Sinclair reported net income of $954.4 million in the third quarter of 2022, up from $280.8 million in the same period last year.
CEO Mike Jennings said the profits “were driven by robust product margins and record throughputs in our refining segment.”
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