* Q2 earnings/shr $1.07 vs estimate of $1.00
* Refining margin falls to $8.93/barrel from $13.71
* Sees 2016 biofuel blending costs at $750 mln-$850 mln (Adds details)
July 26 (Reuters) - Valero Energy Corp (NYSE:VLO) VLO.N expects lower refinery utilization over the rest of the year as companies step up efforts to counter slumping refining margins caused by record supplies of gasoline and diesel products.
Shares of Valero, which also reported a better-than-expected quarterly profit, were up 3 percent at $51.88 in morning trade on Tuesday.
Analysts have said the market will be unable to soak up the gasoline that refiners stockpiled ahead of a summer driving season unless demand surges.
The glut in refined products pushed down Valero's refining throughput margin to $8.93 per barrel in the second quarter ended June 30 from $13.71 per barrel, a year earlier. utilization has been such that supply has been able to keep up and even outpace demand, so ultimately we are going to need a rebalancing and see lower refinery utilization," said Gary Simmons, senior vice president of supply, international operations and systems optimization at Valero.
The company expects combined throughput to fall marginally to 2.79 million barrels per day (bpd) at its 15 refineries in the third quarter, from 2.83 bpd in the second quarter.
Valero said it expects 94 percent capacity utilization at its refineries in the third quarter, unchanged from the second quarter. are also being pressured by a rise in global oil prices, which hit six-month highs in June, and higher costs for the renewable fuel credits.
BP's refining margins hit a six-year low in the latest quarter and the company said margins would remain under significant pressure in the coming months.
Valero said biofuel blending costs more than tripled to $173 million in the latest quarter, primarily due to the purchase of the credits known as Renewable Identification Numbers (RIN).
The company said it continues to expect the cost to be in the range of $750 million to $850 million this year.
Valero's credit costs were $440 million in 2015, according to filings reviewed by Reuters. income from Valero's ethanol business fell about 36 percent to $69 million in the second quarter.
The refiner's net income attributable to shareholders fell nearly 40 percent to $814 million, or $1.73 per share.
Excluding items, Valero reported earnings of $1.07 per share, beating analysts' average estimate of $1, according to Thomson Reuters I/B/E/S.
Up to Monday's close, the company's stock had fallen about 29 percent this year.