updated 4/29/2008 9:47:40 AM ET 2008-04-29T13:47:40

Oil refiner Valero Energy Corp. said Tuesday its first-quarter profit tumbled 77 percent as higher oil prices cut into its margins for gasoline and other refined products.

The San Antonio-based company, North America’s largest refiner, said it earned $261 million, or 48 cents per share, in the quarter ended March 31 compared with $1.14 billion, or $1.86 per share, for the same quarter in 2007.

The latest quarter’s results include a pretax benefit of $101 million, or 12 cents per share. Thomson Financial says analysts expected a profit of 29 cents per share. The estimates typically exclude one-time items.

Revenue was up to $27.9 billion from $18.7 billion a year ago.

“Despite a difficult environment for gasoline margins, we reported positive results for the first quarter,” said Valero chairman and chief executive Bill Klesse. “More recently, gasoline margins have shown moderate improvement as inventories have fallen and demand has increased as it normally does this time of year.”

As expected — and as the company predicted a month ago — refining margins fell markedly in the first three months of 2008 as the cost of crude and other feedstocks grew more rapidly than the prices of gasoline, asphalt, fuel oil and other products.

The company noted the average price of the benchmark West Texas Intermediate crude increased nearly $40 a barrel in the quarter, while the average wholesale price of Gulf Coast conventional gasoline rose by about $34 a barrel.

Partially offsetting those weaker margins were substantially higher margins on diesel and jet fuel, whose global demand remained high.

Valero’s operating income was squeezed by other factors in the first quarter, including higher operating expenses from a year ago.

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