Fitch: North America refiners face risks

Fitch Ratings said the outlook for the North American oil refining sector has shown modest improvement from the cyclical lows of 2009, but uncertain longer-term market conditions remain a threat to the sector.

While moderate product demand growth and reasonable financial results were reported in the most recent quarter, overall market conditions remain vulnerable to weakness as the industry continues to struggle with global refining overcapacity, expensive crude oil and high unemployment rates in Europe and the United States, all which may pressure sector credit metrics, Fitch said.

So far this year, Fitch said it downgraded three North American refiners by one notch including Sunoco, Inc., which has BBB- ratings and a stable view; Tesoro Corp., which has BB with stable view; and Citgo Petroleum Corp., which has B+ with stable view. The downgrades were mainly due to the weak cash flow generation environment for the U.S. refining sector, Fitch said.

The outlook for Valero Energy Corp., which has BBB ratings, remains negative.

Despite these factors, Fitch said it believes the sector credit outlook for refiners is better than it was 12 to 18 months ago, as there is less uncertainty regarding the depth and length of the refining trough since the lows of 2009.

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