Watch: Barron’s Senior Energy Writer Laura Sanicola and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.

Transcript:

LAURA SANICOLA: Hey, everyone. I’m Laura Sanicola, the author of the Energy Insider newsletter at Barron’s, and I’m here today with my colleague, Denton Cinquegrana, Chief Oil Analyst at OPIS. Denton, we’ve been talking for a while now about weakness in the global fuel markets and how that’s dragged down US refining margins to the lowest levels since COVID. Now we’ve got refiners reporting earnings. Valero, often considered a best in class US refiner, reported an eighty six percent slump in third quarter profit last quarter. What do you think we should expect when the rest of refiners report this week and next?

DENTON CINQUEGRANA: Yeah. I think well, as you mentioned, Valero is probably amongst the best in class when it comes to US refiners. So I think you might see some even worse performances.

One of the, key metrics that I caught out of the Valero call today is that their operating cost, this is their cost per barrel on average, is about four dollars and sixty cents a barrel. That’s to run their refineries. That’s for, the natural gas to run it. Their OpEx, four dollars and sixty cents a barrel is in the third quarter. That’s probably gonna be as good as it gets for a lot of refiners in the country. So, yeah, as I mentioned, Valero is probably top class. So, everyone else might be a little bit worse than that, unfortunately.

SANICOLA: Do you think the softness has bottomed out? What sort of supply and demand indicators are you looking at to give you a sense of how refiners might do in the fourth quarter?

CINQUEGRANA: Yeah. So refinery margins in the fourth quarter were only, you know, three and a half, four weeks into it. They have improved from where they left off the third quarter, so that’s a good sign. But there’s still some real pockets of weakness. Gulf Coast gasoline spot prices, for example, are still pretty low, and that Gulf Coast gasoline margin is considered quite weak even for the time of year, but you’re looking at a pretty soft period right now.

SANICOLA: I know that, refiner Phillips 66 announced earlier this month that they are shutting an LA based refinery in twenty twenty five. Do you think we’ll be seeing more of these types of closures, or is that, in your opinion, more of a California specific event considering California has their own fuel stack? It’s more expensive than, the fuel sold in the rest of the country.

What’s your take?

CINQUEGRANA: Yeah. I think if this kind of poor refining margin situation continues to play out between now and, say, the end of twenty twenty five, you might see some more refineries close its stores. Now that might be more Europe and East Asia, but for the most part, this poor margin environment that we look like we might be stuck in for a little bit longer than than most hoped for. Obviously, you’re gonna see fits and starts, but it can lead to more refinery closures. But once we get past twenty twenty five, the amount of new refining coming on capacity and if demand for refined products continues to increase, you’re gonna see at some point demand outstripping supply.

SANICOLA: Alright. Thanks so much, Denton, and we’ll see everybody next week. Bye.