April 29, 2020 / 10:44 AM / 2 months ago

Valero swings to loss on $2 billion inventory hit as coronavirus saps fuel demand

(Reuters) - Valero Energy Corp on Wednesday reported a quarterly loss due to $2 billion inventory writedowns, shining a spotlight on the sharp decline in fuel demand that is expected to drag on refining margins in the sector.

FILE PHOTO: The logo for Valero Energy Corporation is shown at a Valero gas station in Encinitas, California, U.S., May 2, 2016. REUTERS/Mike Blake

U.S. oil prices last week turned negative for the first time, underscoring the extent to which the COVID-19 outbreak has forced people to stay home, hampering travel and damaging demand for fuel.

Valero said it expects current-quarter throughput, the volume of crude processed by its refineries, to be about 2.23 million barrels per day (bpd), the lowest in more than nine years and a steep decline from the almost 3 million bpd it processed a year earlier.

Throughput in the first three months of the year has dropped 1.8% to 2.8 million bpd, the lowest in 18 quarters.

However, Chief Executive Officer Joseph Gorder took an optimistic tone on demand, saying he expects to see more activity, particularly in southern U.S. states where fewer COVID-19 cases have been reported.

“I think there probably is a pent-up demand for folks to get out of their houses and get mobile and to shop again and to go to restaurants again.”

The comments as well as better-than-expected results in Valero's refining and renewable diesel segments sent its shares up 11.5%. Other energy stocks were also up as U.S. oil prices climbed. (For a graphic, please click: tmsnrt.rs/2Wblwoy)

“The real story is the loss of demand and utilization, the recovery of which is contingent upon successful public health efforts ... We will just have to see how the various re-opening efforts proceed,” said Ethan Bellamy, an analyst at R.W. Baird and Co.

The company’s refining margin also fell 9.7% as prices for its products like gasoline, diesel and jet fuel plunge. Quarterly revenue dropped about 9% to $22.1 billion.

Valero took a $2 billion writedown as the value of its refining inventory fell, a week after the largest U.S. refiner Marathon Petroleum Corp (MPC.N) warned of an up to $3.3 billion inventory charge.

The inventory charge pushed Valero to post a net loss attributable to stockholders of $1.85 billion for the quarter ended March 31, compared with net income of $141 million a year earlier.

On an adjusted basis, the company earned 34 cents per share, while analysts had expected a loss of 15 cents.

Valero also cut its 2020 capital investment forecast by $400 million to about $2.1 billion.

Reporting by Shariq Khan in Bengaluru; Editing by Devika Syamnath and Maju Samuel

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