July 31, 2024 [Reuters]- Oil refiner Phillips 66 reported better-than-expected second-quarter results, driven by strong refining utilization and low costs, even as the industry grappled with lower refining margins due to a tepid summer driving season.

The Houston-based refiner’s crude capacity utilization rose to highest in over five years at 98% in the second quarter, up from 92% in the first quarter, CEO Mark Lashier said during a call with analysts on Tuesday.

U.S. fuelmakers ramped up processing capacity to 93.5% in the second quarter, compared with 91% in the same period last year, according to the U.S. Energy Information Administration, on expectations of an uptick in demand that did not materialize.

Phillips 66’s realized margins fell to $10.01 per barrel in the second quarter from $15.32 a year earlier. The refining segment’s overall earnings slumped 74.3%.

Its second-quarter refining earnings was partially offset by the renewable fuels segment, which posted a loss of $55 million amid a glut in renewable diesel production capacity in the United States.

The company’s newly converted Rodeo facility, which produces renewable diesel and sustainable aviation fuel, reached its target production of 50,000 barrels per day in late June.

The refiner’s second quarter results were also buoyed by an increase midstream earnings and lower costs, executives said. The midstream business, which transports natural gas and crude oil, posted second-quarter income of $767 million, up 23.7% from a year ago.

Phillips 66 plans to wind down refining utilization in the coming months. “We do see softening in the markets, in particular some regions on the coasts,” said Richard Harbison, senior vice president of refining. “We’re going to take this opportunity to do some discretionary maintenance,” Harbinson said.

Phillips 66’s shares rose nearly 5% to $147.29 on Tuesday.

On an adjusted basis, the Houston-based company earned $2.31 per share in the second quarter, beating estimates of $1.98, according to LSEG data.

Last week, rival Valero reported a lower quarterly profit but also managed to beat earnings estimates as strong processing volumes offset a slump in margins.