By Laura Sanicola

(Reuters). U.S. oil refiners anticipate strong first-quarter earnings due to a steep decline in refining capacities and tighter supplies caused by Russia’s conflict with Ukraine.

The coronavirus pandemic has seen a drop in global refining capacities, leading to several more profitable oil refineries being closed over the past two years. However, global fuel demand is back to pre-pandemic levels. This has boosted profits at facilities still in operation.

Based on Refinitiv IBES data seven U.S. independent refiners companies will post an earnings-per-share rate of 61cs, which compares to $1.32 loss in the first quarter 2021.

The profit margins of making gasoline and diesel – jet fuel, diesel and other distillates – were already high in recent years. They have since increased, with heating oil crack reaching nearly $41 per barrel at the end March. This is nearly $20 more than the average price over the last five years.

U.S. Independent Refiners, Marathon Petroleum Corp. (NYSE:) Valero Energy Phillips 66 and Corp (NYSE::) both benefited from a rise in European prices due to European sanctions against Russian energy exports.

Valero will kick off the refinery earnings reporting on Tuesday. Phillips will report on Friday. Marathon follows on Friday.

The operation of various oil refineries requires natural gas. Some European refineries had to decrease their production runs due to this expense, in particular distillate-producing ones. The result was a dramatic drop in global distillate inventories, which put a premium on diesel and jet fuel production.

Jason Gabelman (refining analyst at Cowen) stated that geopolitical dynamics will support U.S. refiners on broad natural gas spreads. However, some effects may be less evident with first quarter earnings as compared to future quarters.

But, backlogs in refinery maintenance and high crude oil prices could limit some plants’ strong earnings. Both Phillips 66 (NYSE:) Inc and PBF Energie (NYSE:) Inc were lowered by analysts due to spring maintenance.

According to OPEC data the cost of refinery feedstocks rose sharply in the quarter. It averaged nearly $98 per barrel during the first three month. This was an increase of $18 over the previous three months in 2021.

The Energy Information Administration says that feedstock costs are becoming more uncertain as we move into summer.

“Actual price outcomes will depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market,” the EIA wrote in its short-term energy outlook.