Earnings season for U.S. refiners is kicking off soon, and Citi Research analyst Faisel Khan recently previewed refiner earnings and downgraded several names in the space. Citi believes that narrowing differentials will continue to weigh on refiner margins in the near future.

The Numbers

Narrowing differentials have come as a result of the recent pipeline expansions and production slowdowns in the United States. Citi predicts that this environment will not change anytime soon.

The firm’s latest forecast calls for Brent-WTI differential of only $4.50/bbl, much lower than the previous forecast of $8/bbl. Citi is now calling for parity among LLS, ANS and Brent.

“On the flipside, we are increasing our gasoline margin assumptions by $2 per barrel and keep our distillate margins unchanged,” Khan added.

M&A

Citi generally believes…

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