North American refining and marketing companies continue to post robust results due to recovering demand and low inventory levels, according to a new Fitch Ratings report. The report is a relative credit analysis that compares issuers based on their business and financial characteristics.
Fitch anticipates limited rating actions across the peer group despite above-midcycle cash flows, given the reduced focus on debt reduction by most companies and the softening global demand outlook. Expected refining capacity additions in the Middle East and Asia should partly offset reductions in North America from during the pandemic. The ramp up in North American biofuels also continues. Nearly every refiner in this report is in some stage of a renewable diesel expansion project, which could cause near-term overcapacity if recovering demand continues.
Most companies are within target leverage ranges on a midcycle basis. Fitch anticipates FCF will continue to be allocated toward shareholder returns by investment-grade issuers such as Marathon Petroleum Corporation (BBB/Stable) and Valero Energy Corporation (BBB/Stable). High-yield refiners such as Delek U.S. Holdings, Inc. (BB-/Stable) and Vertex Energy Inc. (B-/Stable) are more focused on growth capex.