InterOil (NYSE: IOC) and Valero Energy (NYSE: VLO) Face Tough Times in Refining Business

Tallahasee, FL 3/30/12 (StreetBeat) -- Refineries dip despite high gasoline prices. The national average price of a gallon of regular unleaded gas climbed to $3.898 on Tuesday. But the high prices still aren't enough to save some U.S. oil refiners, who are finding it a terrible time to be in the gasoline business. The Paragon Report examines the outlook for companies in the Oil & Gas Refining Industry and provides equity research on InterOil Corporation (NYSE: IOC) and Valero Energy Corporation (NYSE: VLO).

"Yet high crude costs are proving difficult to pass on to the consumers. That has made refining -- which once was considered a must-have business for many large energy companies -- unprofitable and unfashionable," Tom Fowler wrote in a recent article for the Wall Street Journal.

Gasoline demand in the U.S. has dropped drastically in past years. The major factors have been the 2008 recession, greater use of biofuels, and the growing fuel efficiency in U.S. vehicles. In December, Americans drove 264.4 billion miles, up 1.3% from the year before, but did so using 2.5% less gasoline and diesel, according to data from the U.S. Department of Transportation and the Energy Information Administration.

InterOil recorded a net profit for the year ended December 31, 2011 of $17.7 million, compared with a net loss of $44.5 million for the same period in 2010, an improvement of $62.2 million. The operating segments of Corporate, Midstream Refining and Downstream collectively returned a net profit for the year of $82.3 million.

Valero Energy announced that due to unfavorable refinery economics and the outlook for continued unfavorable refinery economics, refining operations will be suspended by the end of the month at its subsidiary's 235,000-barrel-per-day refinery in Aruba. The refinery has been operating at reduced rates because of inadequate margins resulting in financial losses.

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