By Douglas McIntyre

Rising prices for crude coupled with lower demand from U.S. drivers combined to turn Valero Energy Corporation (VLO) to a GAAP loss for the third quarter of $489 million, or 87 cents per share. Excluding special items, the loss was $219 million, or 39 cents per share.

Compared with the same period a year ago, Valero’s operating loss was $579 million against a profit of $1.8 billion. The company’s throughput volume on sour crudes fell by almost 300,000 barrels/day, while its throughput on sweet crude rose by almost 100,000 barrels/day.

The company’s ethanol business, which it purchased from bankrupt VeraSun, contributed $49 million of operating income and Valero’s retail operating income also increased slightly to $111 million.
Gross margins on ethanol were 59 cents per gallon. However, margins on refined products fell by nearly 63%, from $13.11 to $4.86. Total refining throughput was down about 8%.

Refiners Marathon (MRO) and Tesoro (TSO) report earnings on November 2nd and 9th, respectively. Supermajors ConocoPhillips (COP), Exxon Mobil (XOM), and Chevron (CVX) report third quarter earnings tomorrow (Conoco), Thursday (Exxon Mobil), and Friday (Chevron).

Analysts estimate that Marathon will post a profit of 58 cents per share compared with $2.76 per share last year. Estimates for Tesoro come in at a profit of 1 cent per share against last year’s earnings of $1.63. Clearly no one’s expecting much from refiners this quarter, but even their lowly expectations are unlikely to be hit, given the poor results at Valero.

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As for Big Oil, Conoco is expected to post earnings of 94 cents per share compared with an actual last year of $3.32/share. And that estimate is lower than 2009 second quarter earnings of 97 cents per share. Analysts anticipate Exxon Mobil earnings of $1.05 per share, compared with $2.59 a year ago and 84 cents last quarter. Expectations for Chevron are for earnings of $1.45 per share compared with $3.85 a year ago and 87 cents per share last quarter.

Big Oil profits come primarily from crude sales, so refining throughput and margins play a much smaller role in these companies’ overall performance. Still, high crude inventories in the U.S., and reduced consumption in western Europe have weighed heavily on expectations for the third quarter. The truth is, those estimates may be optimistic.
Right now, crude prices are following the dollar. As the dollar falls, crude prices rise. And there’s little reason to believe that the dollar will strengthen anytime soon.

If Russia continues to pump more oil, and if OPEC raises its output, pump prices could remain stable for a while. But OPEC is unlikely to do anything until crude prices go above $90 a barrel.

Higher crude prices won’t help refiners at all going forward. As a group, refiners do not look like a good short-term bet.

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