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MPC, VLO, ANDV, PSX: How 3Q17 Treated Refiners

PART:
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Part 7
MPC, VLO, ANDV, PSX: How 3Q17 Treated Refiners PART 7 OF 8

How Marathon Petroleum’s Refining Earnings Could Move in 3Q17

MPC’s refining earnings indicators

In this part, we’ll study Marathon Petroleum’s (MPC) refining earnings indicators. MPC’s refining earnings are affected by its blended LLS (Light Louisiana Sweet) 6-3-2-1 crack, LLS-WTI (West Texas Intermediate) spread, and sweet-sour differential. According to MPC, a dollar-per-barrel expansion in the blended LLS 6-3-2-1 crack increases its annual net income by $450 million, and a dollar-per-barrel variation in the sweet-sour and LLS-WTI spreads varies its annual income by $220 million and $90 million, respectively.

How Marathon Petroleum&#8217;s Refining Earnings Could Move in 3Q17

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MPC’s refining margin expands between 2Q17 and 3Q17

Between 2Q17 and 3Q17, according to MPC, the blended LLS crack expanded by $3.50 to $12.70 per barrel, and the LLS-WTI spread expanded by $1.40 per barrel. However, the sweet-sour differential narrowed by $0.10 to $5.40 per barrel. The marginal quarter-over-quarter contraction in the sweet-sour differential is likely to be negated by the improvement in the blended LLS crack, pointing towards growth in MPC’s refining earnings in 3Q17.

However, MPC’s RIN (renewable identification number) expenses soared from $3.50 per barrel in 2Q17 to $4 per barrel in 3Q17, implying that the improvement in refining earnings due to a better crack could be partly offset by a higher RIN burden.

MPC’s refining margin expands between 3Q16 and 3Q17

Similarly, year-over-year, the blended LLS crack and LLS-WTI spread expanded by $4.60 per barrel and $1.80 per barrel. However, the sweet-sour differential narrowed by $0.90 per barrel, implying a likely rise in MPC’s refining earnings between 3Q16 and 3Q17. RIN costs rose from $3.80 per barrel in 3Q16 to $4 per barrel in 3Q17. Therefore, the refining situation appears to be improving for MPC, though RIN costs could dent its earnings growth. In the next part, we’ll review Valero Energy’s (VLO) refining margin indicators in 3Q17.

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