Oil Firms' Margin Woes Spread

Grim profit forecasts by a trio of major oil players citing shrinking margins are pointing to tough times for the energy group heading into the upcoming round of earnings announcements.

Key sector members Valero VLO, Marathon Oil MRO and Chevron CVX have all indicated that low refining margins will likely hurt their bottom lines in the third quarter of 2007.

Valero was the latest to warn, saying Wednesday that its throughput margins will likely be $700 million less in the quarter than in the same period last year as a result of higher feedstock costs.

Similarly, Chevron said on Tuesday that its earnings will be "significantly below" its second-quarter profits due to a "sharp decline in refined-product margins for the downstream business," according to a press statement.

Just hours before Chevron's remarks, Marathon said its quarterly refining and wholesale marketing gross margin would be about half the 32.7 cents a gallon earned in the prior year.

Valero's stock overcame early weakness, though, and late in the session it was up 3% on the day to $74.35. Marathon gained 0.8% to $58.82, but Chevron slipped 0.7% to $92.17.

The Dow Jones U.S. Oil & Gas index, a tracker for the energy sector, was higher by 1.5%.

At any rate, the predictions are striking because refinery crack spreads for products like motor gasoline were near record highs just a few months ago. Refinery stocks performed well last spring, as consumption figures showed strong demand for energy leading into the summer driving and cooling seasons.