Falling Refinery Margins Slice Marathon Petroleum's Quarterly ... - Investopedia

Falling Refinery Margins Slice Marathon Petroleum's Quarterly Earnings

Refiner and pipeline operator Marathon Petroleum ( MPC), citing a hit to refinery margins, reported substantial declines in second-quarter revenue and earnings that nonetheless comfortably exceeded market expectations.

Key Takeaways

- Subdued oil prices hurt refining margins, impacting second quarter profits for Marathon Petroleum.
- Marathon's profit and sales revenue fell 63% and 33% respectively, in the second quarter.
- Resurgence in oil and gas prices brightened Q3 outlook for the Findlay, Ohio-based energy company.

Findlay, Ohio-based Marathon said Tuesday it earned $2.2 billion, or $5.32 per share, in the second quarter on sales revenue of $36.3 billion. Profit and sales revenue fell 63% and 33%, respectively. from $5.9 billion, or $10.95 per share, and $53.7 billion in the same period a year ago.

The decline reflected the year-long slide in crude oil prices from a year ago, when Russia's invasion of Ukraine displaced short-term supplies, roiling global markets. Gasoline prices soared after the invasion, as well, boosting refinery margins.

Still, Marathon's latest results easily surpassed consensus projections, according to YCharts, for anticipated earnings of $4.57 per share on revenue of $33.8 billion.

Meanwhile, recently rising oil and gas prices could set the stage for higher refining margins in the current quarter.

Refining Margins Skid

The company said operating income in its refining and marketing segment, accounting for about two-thirds of its business, plunged 68% in the quarter. That decline reflected a per-barrel margin decline to $22.10 from $37.54 in the same period a year ago.

Monthly U.S. retail gasoline prices averaged $3.69 per gallon in the second quarter, down from $4.59 a year ago. Prices rose as high as $5.11 per gallon in mid-June 2022, an all-time high.

Rising oil prices produced last year's surging gas prices. Spot prices for U.S. crude oil peaked at $121.94 per barrel in early June 2022, Last month, they averaged $70.25.

Operating income in the company's midstream pipeline segment rose 7%.

Rising Oil & Gas Prices Lift Q3 Outlook

Recently, oil and gas prices have surged amid increased optimism that the U.S. economy will avert a recession. That could help boost Marathon's refinery margins in the current quarter.

Crude oil for September delivery at the New York Mercantile Exchange reached $81.80 per barrel Monday, up 16% in the past month. U.S. gas prices averaged $3.87 in the week ended Monday, the highest since November.

The company said it expects refinery operating costs of $5.10 per barrel this quarter, down 5 cents from the second quarter. If gas prices keep rising while refinery costs stay relatively stable, Marathon's refinery margins likely would expand.

Marathon's shares, up roughly 14% year-to-date, remained mostly steady in early trading. In addition to its quarterly earnings, the company said it has completed upgrades to its refinery outside Galveston, Texas, yielding 40,000 barrels per day of incremental refining capacity.

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