By Nicole Jao
NEW YORK, April 27 (Reuters) – Top U.S. independent refiners are expected to report stronger first-quarter results than a year ago, helped by supply disruptions tied to the war in the Middle East that drove fuel margins to multi-year highs.
Refiners came out of the first quarter with diesel and jet fuel margins sharply higher than at the start of the year, following the February 28 start of the U.S.-Israeli attacks on Iran that led to the closure of the Strait of Hormuz – a narrow shipping route that carries about a fifth of the world’s oil and a large share of global fuel exports. Analysts say much of the profit boost is likely to appear later in the year.
Shares of major U.S. refiners such as Valero Energy, Phillips 66 and Marathon Petroleum have climbed more than 20% so far this year.
“Refiners had a whirlwind Q1’26, as the escalation of the Iran conflict led to global supply restrictions that sent product cracks (margins) soaring,” said Matthew Blair, an analyst at Tudor, Pickering, Holt & Co, noting that distillates is where the strongest margin uplift was coming through.
Diesel cracks strengthened as barrels typically moving out of the Middle East through the strait were choked. The already-low inventories heading into the global supply shock also contributed to the upside, analysts said. Unlike gasoline, diesel markets had less spare capacity to cushion the shock, leaving refiners outside the Middle East better positioned to capture incremental demand.
The ultra-low sulfur diesel futures crack spread, a measure of a refinery’s profit margin, jumped 105% to a record high of $86.25 per barrel on March 20.
Jet fuel margins also have rallied since the start of the conflict, particularly for coastal refiners and export-oriented refiners, analysts said. The Middle East is a key exporter of jet fuel, and logistical disruptions quickly rippled through aviation markets, particularly in Asia and Europe.
GAS PRICES JUMP
Gasoline margins also were buoyed by the supply disruption, though to a lesser extent, as profits were capped earlier in the quarter as refineries were running hard and supplies were ample.
The U.S. gasoline futures crack spread rose to $37.62 per barrel on March 27, its highest level in more than two years. The U.S. average price at the pump rose above $4 a gallon at the end of March for the first time in more than three years, capping the sharpest monthly rise in decades.
Phillips 66 is set to kick off refiner earnings on Wednesday, with analysts expecting the company to report a loss of $0.27 per share, versus a loss of $0.90 per share a year ago, according to LSEG estimates.
The Houston, Texas-based refiner had warned that its first‑quarter earnings were weighed down by a sharp rise in commodity prices, resulting in nearly $900 million in pre-tax mark-to-market hedging losses – a challenge also faced by other refiners as crude prices climbed, offsetting gains from stronger margins.
Companies use hedges to protect against oil price fluctuation. Analysts say these losses are largely accounting-related and could reverse later, but they still weighed on first-quarter results.
Despite the near‑term hit, Phillips 66 remains well positioned on a longer-term basis due to its high distillate yield, which is among the strongest in the sector, said Allen Good, an analyst at Morningstar.
Analysts expect Valero, the second-largest U.S. refiner by capacity, to report a profit of $3.15 per share, up from $0.89 per share a year ago, according to LSEG data. The San Antonio, Texas-based refiner’s results were lifted by strong Gulf Coast cracks, but the upside was limited by the shutdown of its refinery in California and a fire at a diesel hydrotreater in Port Arthur, Texas.
Marathon Petroleum, the top U.S. refiner by volume, is expected to report a per-share profit of $0.86, up from a loss of $0.24 per share a year ago, LSEG estimated. Marathon is best positioned to reap the benefits from the current environment given its exposure to U.S. midcontinent and West Coast markets, some analysts noted, expecting most excess cash flow to go toward buybacks.
Investors will be listening for guidance for the coming months as higher fuel margins begin to feed more clearly into earnings. Analysts expect U.S. refiners to benefit from the favorable margin environment for the next few quarters.
“The market will likely focus more on rest-of-year earnings,” said Jason Gabelman, an analyst at TD Cowen, noting that margin strength materialized only late in the quarter.
(Reporting by Nicole Jao and Siddharth Cavale in New York; Editing by Paul Simao)
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