I bet you’re going to be hearing some news today regarding what President Biden said about U.S. refineries in his State of the Union address. Short story, the President suggested that the refining industry is “profiteering” based on our recent earnings and that we should be taxed because of the way we’re spending those earnings. Giving this message, particularly while the State of California is actively trying to target the refining industry with its own new taxes, is irresponsible and just plain wrong. AFPM said as much last night.
Still, we figure you might get a few more questions from your friends and family this week about refinery profits, buy back taxes and windfall profit taxes, so we wanted to offer some context. Hopefully the information below helps make any conversations you have a little more constructive.
Ericka (w/AFPM EMPOWER)
What’s going on with refinery profits?
Refinery earnings right now are certainly atypical. They’re high, and that’s largely because the world has less refining capacity today to meet consumer demand for liquid fuels. Considerable refining capacity shuttered or began converting to renewable fuel production over the course of the pandemic. The public didn’t feel the effects of that early on because the pandemic drastically cut fuel consumption, but now that demand has come roaring back, and new refining capacity is slower to come online, we’re feeling the pinch. Tighter supplies globally lead to higher refined product prices. That will change as more refineries open, as other countries increase their refinery utilization or if demand drops.
The big picture to keep in mind is that refinery earnings are cyclical. Our industry always takes the “long view.” We go through periods of highs and lows based on supply and demand. During the pandemic, that meant many refineries posted major losses and accrued a lot of debt. Now, some of that is being paid off.
What happens with refinery earnings?
This is important because some people are pointing to stock “buy back” programs as being problematic, when that’s not the case. Publicly owned companies, like many U.S. refineries, are required to act in the best interest of their shareholders, and that extends to how they spend their earnings. Often, companies will use their earnings do a combination of the following (more detail on that here):
Pay direct dividends to shareholders.
Re-purchase or “buy back” shares of stock.
Retire or pay down debt.
Re-invest to grow the company via improved operations, building projects, acquisitions and hiring.
Just because a refinery puts its earnings to work through stock buy backs or retiring debt does not mean that it isn’t also making every effort to support U.S. fuel production.
What are U.S. refineries doing to bring supply and demand into better balance, since that’s what affects prices and earnings?
American refineries have operated over the last year at near full utilization, deferring maintenance where safe and possible, and contributing more liquid fuel supplies to the global market than any other country. That’s huge. No other country comes close to matching U.S. utilization rates and fuel output for a variety of reasons. While many U.S. refineries are due for planned maintenance this year, global fuel demand outlooks appear strong, so we will continue to maintain as high of refinery utilization as we safely and responsibly can.
Stand With Us
Join our community of employee advocates. Sign up for new content delivered straight to your inbox.