US refiners ramp up buybacks as Iran war boosts fuel margins

US refiners sharply increased returns to shareholders in the second quarter as disruptions to crude supplies through the Strait of Hormuz pushed fuel prices and refining margins higher, making the industry one of the biggest financial beneficiaries of the Iran war, as per a report by Reuters.

Marathon Petroleum, Phillips 66 and Valero Energy reported combined profits of $12.6 billion for the quarter, their strongest collective performance since Russia's invasion of Ukraine in 2022, according to the report.

The three refiners returned $6.3 billion to shareholders through stock buybacks and dividends during the quarter, Reuters calculations showed, more than double the $2.6 billion returned in the same period a year earlier. Their combined profits had stood at just $2.9 billion a year ago.


The surge in earnings came as the conflict disrupted global energy shipping and encouraged international buyers to pay higher prices to secure supplies. Attacks on Russian oil refineries further tightened global fuel availability, lifting prices and margins even as consumers faced broader inflationary pressures.

Analysts expect shareholder payouts to remain strong in the third quarter. TD Cowen analyst Jason Gabelman estimates Marathon Petroleum and Valero could repurchase shares equivalent to about 20% of their market values between the third quarter and the end of next year. Phillips 66, which is placing greater emphasis on growth investments and debt reduction, could buy back roughly 10% of its market value, Gabelman estimated.

Phillips 66's board approved a $10 billion increase in its share repurchase authorization in July. Valero also authorized a new $5 billion buyback program, in addition to $2.5 billion remaining under an earlier authorization. Smaller rival HF Sinclair increased its quarterly dividend by 5%.

The strong earnings have also fueled a sharp rally in refiner stocks. Marathon Petroleum shares have gained about 110% so far this year, while Valero is up more than 98% and Phillips 66 has risen about 75%. The S&P 500 energy sector has gained roughly 36% over the same period.

Refining margins hit records
According to Reuters, Tighter global fuel supplies have driven U.S. gasoline and diesel crack spreads, a key measure of refinery profitability, to exceptional levels.

The ultra-low sulfur diesel futures crack spread reached a record $93.84 a barrel on August 10, while the U.S. gasoline futures crack spread climbed to $60 a barrel on July 17, its highest level since April 2020, according to Reuters.

The U.S. average gasoline price also moved above $4 a gallon at the end of March for the first time in more than three years, marking its sharpest monthly increase in decades.

Refiners remain cautiously optimistic about the outlook, although they face seasonal challenges in the second half of the year as gasoline demand typically eases after the summer driving season and the market transitions toward winter heating fuels.

Marathon said fuel margins remained robust but had moderated from the exceptionally strong levels recorded during the second quarter and early in the current quarter, the report stated.

Valero benefited from strong jet fuel margins during the second quarter, but that support has weakened in the third quarter. However, the reopening of an arbitrage opportunity for jet fuel exports to Europe could provide some relief, while the shift toward winter diesel specifications is expected to support margins later in the quarter.

The combination of constrained global supplies, elevated fuel prices and continued capital returns could keep U.S. refiners in a strong financial position, although the sustainability of current margins will depend heavily on the duration of geopolitical disruptions and global fuel demand, according to the report.