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Why Phillips 66’s Diversified Growth Model Matters

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Why Phillips 66’s Diversified Growth Model Matters PART 1 OF 12

Gauging the True Impact of Hurricane Harvey on Phillips 66

Phillips 66’s stock performance

Since July 3, 2017, Phillips 66 (PSX) stock has risen 2.4%, outperforming the SPDR S&P 500 ETF (SPY), the overall market indicator, which has risen 2.0% during the same period.

Peer Andeavor (ANDV) has risen a sharp 8.5% since July 3, while Valero Energy (VLO) and Marathon Petroleum (MPC) have risen 3.1% and 2.1%, respectively, so far this quarter.

Gauging the True Impact of  Hurricane Harvey on Phillips 66

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Phillips 66 stock rises in 3Q17

In 3Q17, Phillips 66 stock has risen likely because of Hurricane Harvey, which hit Texas on August 26, 2017 and impacted ~30% of refining capacities in the US. The hurricane also impacted Phillips 66’s Sweeny, Texas refinery, which has a capacity of 247,0000 barrels per day and is still shut down and undergoing a start-up process.

Gasoline prices have risen sharply due to the fear of a huge drop in gasoline production going forward. Refining cracks have strengthened, and refiners are now trying to postpone their scheduled maintenance activities to take advantage of the stronger cracks. Notably, MPC delayed its planned maintenance at its Catlettsburg, Kentucky, refinery for a week.

The USGC WTI 3-2-1 crack

In fact, in 3Q17 so far, the USGC (US Gulf Coast) WTI (West Texas Intermediate) 3-2-1 crack has been steeply influenced by Hurricane Harvey. The crack, which stood at $15.4 per barrel on July 3, 2017, rose to a high of $35.2 per barrel on September 1, 2017. The crack has now dropped to $26.7 per barrel—still higher than what we saw at the beginning of the quarter. The US Gulf Coast is a major refining area for Phillips 66 (PSX), which processed 34% of its total oil throughput in 2016.

The EIA (US Energy Information Administration) announced a fall of 4.5% in gasoline inventories for the week ending September 1, 2017, compared with the week ending June 30, 2017, and distillate inventories fell 1.8%, in the same period.

In 3Q17, PSX’s 2Q17 earnings also surpassed analysts’ estimates. (For more on this, please refer to the series Phillips 66’s 2Q17 Earnings Beat Estimates, Stock Rose 2.2%.)

In short

Overall, Phillips 66 stock has risen in 3Q17 quarter-to-date likely due to the higher cracks stemming from Hurricane Harvey and the decline in gasoline and distillate inventories on the market. PSX’s strong 2Q17 numbers fueled the rise.

In the next part, we’ll review PSX’s moving averages.

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