Why ExxonMobil’s downstream segment is still a risk despite a blip

Refinery maintenance is normal: Don’t expect this downtime going forward

Note that maintenance is a normal part of refinery operations, and XOM would have had to perform maintenance at its refineries at some point. It’s an anomaly that so much maintenance was performed in this quarter, and as the company stated, the degree of downtime shouldn’t be expected going forward.

XOM noted on its earnings call, “Certainly, if you look prior to this year over the last five years, it (refinery maintenance) was considerably higher than normal. In fact, about 9% of our capacity was offline for planned maintenance in the quarter and we typically average about 4% to 5%… this activity is now behind us. And by-and-large, all those units are back online and up and running… So big downtime, all of it planned, all of it coming back up and we are looking forward to the third quarter and getting these things, again, back up and running and producing product.”

2013.9.14 - GC321Enlarge Graph

However, danger lurks in refinery margins

Underperformance due to refinery maintenance shouldn’t be a worry going forward, but there’s still the issue of refining margins. Crack spreads, which are representative measures of refining margins (for further explanation of this measure, see Crack spread 101) are down significantly since 2Q13. For instance, the Gulf Coast 3-2-1 crack spread averaged ~$19 per barrel in 2Q13. For 3Q13 to date, the GC321 has averaged ~$13.50 per barrel, and it’s currently trading at $6 per barrel. Weaker crack spreads portend weaker results for refining operations.