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Refining Sector in 2Q17: TSO Outperforms MPC, VLO, and PSX

PART:
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Part 6
Refining Sector in 2Q17: TSO Outperforms MPC, VLO, and PSX PART 6 OF 12

Could Valero and Tesoro’s Refining Margins Rise in 2Q17?

Tesoro’s refining margins indicator

In 2Q17, Tesoro’s (TSO) refining index values, which are crack indicators in the areas where TSO operates, have risen compared to 1Q17, quarter-over-quarter.

The respective index values in California and the Pacific Northwest rose to $15.30 per barrel and $11.40 per barrel in 2Q17 from $13.00 per barrel and $9.80 per barrel in 1Q17. Plus, TSO’s Midcontinent index value surged sharply from $13.10 per barrel in 1Q17 to $16.30 per barrel in 2Q17. 

On a consolidated basis, TSO’s index has risen $2.30 per barrel over 1Q17 to $14.70 per barrel in 2Q17. This could indicate a rise in Tesoro’s refining margins in 2Q17 compared to 1Q17.

Could Valero and Tesoro’s Refining Margins Rise in 2Q17?

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Year-over-year, all three areas have seen a rise in their index values. Tesoro’s consolidated index rose by $0.80 per barrel over 2Q16 to $14.70 per barrel in 2Q17. This trend indicates a possible increase in TSO’s refining margin in 2Q17 over 2Q16.

Valero’s refining margin indicators

Valero Energy (VLO) reports region-wise crack indicators where its refineries operate. The four regions where Valero operates its refineries are the US Gulf Coast (or USGC), US Mid-Continent (or Midcon), US West Coast (or USWC), and North Atlantic.

Three of VLO’s four regions have seen an increase in average regional cracks in 2Q17 compared to 1Q17. VLO’s Midcon crack indicator rose from $12.40 per barrel in 1Q17 to $13.10 per barrel in 2Q17. Similarly, its USWC and North Atlantic indicators rose on a sequential basis. 

However, the USGC crack fell by $0.90 per barrel over 1Q17 to $15.10 per barrel in 2Q17. However, the fall in USGC crack could be offset by a rise in cracks in the other three zones. This could indicate an increase in VLO’s refining margins in 2Q17 compared to 1Q17.

However, on a yearly basis, cracks have fallen in USGC and North Atlantic. In 2Q17, a rise of around $1.50 per barrel and $0.23 per barrel over 2Q16 in Midcon crack and USWC crack, respectively, could be partially offset by a drop of $0.82 and $0.89 per barrel in USGC and North Atlantic cracks, respectively.

Valero’s earnings could be impacted by the RINs (renewable identification numbers) purchase cost. In the next part, we’ll examine Marathon Petroleum’s (MPC) refining margin indicators and RINs costs.

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