Valero third-quarter profits more than quintuple

Oct. 26, 2022
The refiner’s leaders say several factors are lining up to sustain demand growth even in the case of a recession.

Valero Energy Corp., San Antonio, reported net third-quarter profits of more than $2.9 billion, nearly six times its bottom line of the same period in 2021, as it more than doubled its refining margin per barrel to $21.34. Revenues rose more than 50% during the quarter to nearly $44.5 billion.

Total throughput rose to a little more than 3 million b/d, an increase of nearly 5% from the prior year, due to strong growth in the company’s Gulf Coast region. There, volumes climbed nearly 10% from the summer of 2021 to more than 1.8 million b/d and refining margin increased to $3.3 billion from $1.4 billion.

Overall capacity utilization, which Valero executives had said in July might moderate a bit, ticked up a point from the second quarter to 95% (OGJ Online, July 29, 2022). On a conference call with analysts and investors, chief commercial officer Gary Simmons said demand for the company’s product remains strong.

“We set a wholesale volume record in August. We beat that in September and we're on pace to beat it again in October,” Simmons said. “If you look at the pump market through our wholesale channels of trade, gasoline is trending about 8% above where we were pre-pandemic levels. Diesel volumes are trending about 32% above where we were pre-pandemic levels.”

That trend likely won’t reverse as it has in past downturns even if the economy enters into a recession, Simmons said.

“One, jet demand hasn't fully recovered,” he said. Chinese demand, which has been down 20%, is also expected to recover, he said. The expectation, he said, is that "even with the typical recessionary period—you may see year-over-year global oil demand growth.”

Underlying demand combined with refining capacity that has been removed from the market in recent years has set the stage for “a higher call on refining capacity” that will lift margins for an extended period of time, the company said.

“You're going to have probably not as much investment in the fossil fuel industry, in particular refining, going forward at a time when everybody is trying to understand exactly how the balances are going to work,” said Lane, Riggs, president and chief operating officer. “We're not prepared to quantify [the step up in margins] but we do believe the next mid-cycle will be higher than the last mid-cycle.”

Looking to the fourth quarter, the Valero team said they expect throughput to take a step back from third-quarter levels at their Gulf Coast (-3% at the forecast midpoint), West Coast (-4%), and North Atlantic refineries (-6%), but grow over 6% in the Mid-Continent region.

Shares of Valero (Ticker: VLO) were down about 2.5% to $126 in afternoon trading Oct. 25. Over the past 6 months, shares have risen by about 25%, growing the company’s market capitalization to about $50 billion.