HollyFrontier (NYSE:HFC) will release its quarterly report on Wednesday, and investors are bracing for what could be disappointing results from the refinery company. Already, Phillips 66 (NYSE:PSX) and Marathon Petroleum (NYSE:MPC) have disappointed investors with their results, and there's reason to believe that HollyFrontier will face the same struggles in keeping profits up in light of changing conditions in the domestic and international energy markets.

HollyFrontier has benefited greatly in recent years from the soaring production of U.S. oil, as producers have had to accept relatively low prices for their output. That has given HollyFrontier, Phillips 66, and Marathon Petroleum a big boost in earnings, as they've been able to get their oil more cheaply than they would on the international markets, raising their profit margins. Yet over the past few months, the discount on domestic oil compared to Brent crude narrowed substantially, hurting those margins. Let's take an early look at what's been happening with HollyFrontier over the past quarter and what we're likely to see in its report.

Stats on HollyFrontier

Analyst EPS Estimate

$0.66

Change From Year-Ago EPS

(78%)

Revenue Estimate

$4.50 billion

Change From Year-Ago Revenue

(13.6%)

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Can HollyFrontier earnings hold up?
Analysts have been brutal in cutting their views on HollyFrontier earnings in recent months, slashing their third-quarter estimates almost in half and cutting almost $1 per share from their full-year 2013 projections. The stock hasn't really felt any hit from the earnings pessimism, though, rising another 5% since early August.

HollyFrontier's second quarter gave a glimpse at what narrower spreads between domestic and international crude prices could do to the refiner. The company said net income plunged by almost half, citing refinery gross margins that fell by 26% from the year-earlier quarter. Operating expenses climbed as overall volumes flowing through the production process also declined, due in part to maintenance at three of its refinery locations. HollyFrontier's results were consistent with Marathon Petroleum's 58% drop in net income during the second quarter, and with Marathon having just reported an 80% income drop for its third quarter and Phillips 66 following suit with a decline of about two-thirds from year-ago levels, HollyFrontier investors are right to be scared about the refiner's prospects.

Spreads between West Texas Intermediate and Brent crude aren't the only thing hitting HollyFrontier and its peers. Renewable fuel standards set by the EPA have also forced refiners to buy Renewable Identification Numbers in order to comply with ethanol-production goals. HollyFrontier said that as of mid-year, it was buying RINs equal to half its quota under the EPA requirements, and with prices of RINs soaring, refiners are feeling the pinch in their profits.

But lately, crude-price spreads have started to expand once more. As U.S. production levels rise, the prohibition against exporting crude could create the same price disparities that a lack of pipeline infrastructure was responsible for in recent years. Moreover, as geopolitical tensions in key oil-producing areas like the Middle East rise and fall, Brent/WTI spreads tend to move in unison. If those factors persist, they could help HollyFrontier, Phillips 66, and Marathon Petroleum all bolster their profits going forward.

In the HollyFrontier earnings report, watch to see the extent to which the company continues to take a hit from renewable fuel requirements. With oil-price spreads open to constant fluctuation, the potential impact of environment regulation is one threat that's likely to hurt the industry going forward. HollyFrontier needs to do what it can to improve its standing compared to Phillips 66 and Marathon Petroleum in that area if it wants to fare better than its rivals in the long run.

Click here to add HollyFrontier to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.