SAN ANTONIO -- Valero said Wednesday it is slashing production to cope with a money-losing gasoline refining business, as market prices pushed down by depressed crude demand continue to plumb multi-year lows. As retail U.S. gasoline prices remain below $1.70 a gallon, Valero spokesperson Bill Day said the refiner-marketer is losing $5 to $10 a barrel on the fuel, reported MarketWatch.
The San Antonio, Texas-based company, ranked as the largest standalone refiner in North America, will run its fluid catalytic cracking units at 70% to 75% of capacity in December, or at [image-nocss] least 20% below normal levels, Valero spokesperson Bill Day said.
Analysts expect Valero to post lower earnings in 2009 on the heels of cooler oil prices and expectations for an economic slowdown in the coming 12 months, said the report.
Meanwhile, Back Bay Research analyst Jacques Rousseau has upped his fourth-quarter profit target for Sunoco Inc. to $2.15 a share from $1.90 a share, but said he's eying lower gasoline margins as the price of the fuel continues to drop, said a separate MarketWatch report.
While Sunoco will likely post stronger earnings than its peers, "refining margins have weakened considerably in November and December...primarily due to negative gasoline margins," he said in a note to clients.
Sunoco's CEO, Lynn Elsenhans, recently said that the Philadelphia refiner-marketer will see a major cost-cutting push that likely will lead to an unspecified number of job losses next year in the Philadelphia area, where Sunoco employs 4,900, including 700 in convenience stores, reported The Philadelphia Inquirer. She said the cost-reduction program "actually is not in response to the [current economic] downturn," but rather an effort to get the company's costs out of the average range into the top quartile. The company must do a better job buying supplies, utilities and services. "This is not cut and cope," she said, citing potential for savings in corporate overhead and in the operation and maintenance of refineries and chemical plants.
And Tesoro Corp., also based in San Antonio, has slashed its capital spending plans for 2009 and expects to hold off on large projects due to depressed margins going forward, reported Dow Jones. CEO Bruce Smith told analysts Tuesday that it had cut its 2009 capital spending from $1.1 billion to just $600 million to $700 million. "We're not just going to push projects off to 2010," he said. The company does not plan to simply defer projects, because it does not expect refiners' returns to improve quickly.
"I just think that the margin environment could be that difficult for a couple of years," Smith said. As a result, Tesoro will scale back capital spending for several years, he said.
Tesoro expects the margin environment for refiners in 2009 to be equally challenging, or even more difficult than it was in 2008, Smith said. The decline will likely be due to continued weak demand, he said. Still, the company says its own profit margins will likely improve because of strategic improvements, allowing Tesoro to buy cheaper crude and produce more valuable products.
Meanwhile, in response to questions about the incoming Obama administration, Sunoco's Elsenhans said she would not be surprised to a see a higher federal gasoline tax, even though President-elect Barack Obama said he opposed it. "As I see it, it's not necessarily a bad thing," she said, because it would encourage conservation and energy efficiency.
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