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HomeMarketGas Prices Are Below Year-Ago Levels and It's Crushing Refiners' Stocks

Gas Prices Are Below Year-Ago Levels and It’s Crushing Refiners’ Stocks

Ty Wright/Bloomberg

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For the first time in 654 days, gasoline prices have fallen below year-ago levels—a landmark moment that’s hurting some of the companies that had profited the most from high gas prices over that stretch. Refiners have seen their margins on gasoline drop to almost nothing after they had reached record levels earlier this year.

The average U.S. gasoline price on Friday was $3.32 per gallon, down from $3.34 a year ago. The drop has been faster than most analysts had predicted, and it could even lead to average 2022 gasoline prices falling below $4.

“A $3.30/gallon average for the rest of the year will result in an annual average just shy of $3.97/gallon,” according to the Oil Price Information Service, or OPIS. “Unless there is a dramatic trend shift over final 23 days of the year, the U.S. average for the year will come in several cents below $4/gallon.”

U.S. refineries are operating at very high capacities—94% versus 89% a year ago—churning out gasoline and diesel. And China is refining more fuel too, helping alleviate global shortages of things like heating oil. The increased supply comes just as the world is using less of those fuels, because economies are slowing and China still hasn’t fully opened up its economy. Warm early winter weather has also reduced demand for heating fuels. U.S. government data show that gasoline use is down 7% in the past four weeks, compared with the same period a year ago. Diesel use is down 10%.

The drop is taking a toll on refining margins. Diesel refining was bringing more than $50 per barrel just two weeks ago, but that has fallen to $35 or so this week, according to Tom Kloza, the global head of energy analysis at OPIS. The Energy Information Administration predicts that next year diesel refining margins will fall 19% from average 2022 levels.

For refinery stocks, the drop-off in margins is scaring many investors away.
(ticker: VLO) stock has tumbled 15% in the past two weeks, while competitors
Phillips 66
(PSX) and
Marathon Petroleum
(MPC) have fallen by similar amounts. All of the stocks are still up more than 30% this year, while the
S&P 500
is down about 17%.

That said, some analysts say investors should consider buying the stocks on recent weakness. Diesel margins are still about double the levels from a year ago, notes Bank of America analyst Doug Leggate. And eventually refiners will have to cut capacity to do maintenance, reducing the oversupply.

“Volatility is an unavoidable characteristic of the U.S. refiners,” he wrote. “We see the most recent pull back (as it’s not the first) providing another opportunity to revisit the broader sector in 2023.”

Write to Avi Salzman at


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