Phillips 66’s 3Q17 Refining Margin Outlook: A Pre-Earnings Review
PSX’s segment-wise analysis
Before we look at Phillips 66’s (PSX) refining margin outlook for 3Q17, let’s do a quick review of its segment-wise earnings in 2Q17.
In 2Q17, Phillips 66’s (PSX) total adjusted net income of $569.0 million rose 14.0% YoY (year-over-year). Its Refining segment rose from $152.0 million in 2Q16 to $233.0 million in 2Q17. That was offset by lower crude oil throughputs YoY. The segment made the highest contribution to the company’s total adjusted net earnings in 2Q17. The segment’s earnings contributed 41.0% to the total adjusted income.
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PSX’s Chemicals segment, which rose 3.0% YoY to $196.0 million in 2Q17, contributed 34.0% to the company’s total adjusted earnings. The Midstream segment’s earnings rose from $39.0 million in 2Q16 to $64.0 million in 2Q17 due to higher DCP Midstream (DCP) earnings.
Even though PSX’s Marketing and Specialty segment’s earnings fell, it made the second-highest contribution of 38.0% to PSX’s total adjusted earnings. The segment’s earnings fell to $218.0 million in 2Q17 from $229.0 million in 2Q16 due to lower volumes. Corporate and other expenses dented those earnings by $142.0 million in 2Q17.
Phillips 66’s third-quarter refining margin outlook
In 3Q17, Phillips 66’s (PSX) refining margins are expected to be higher due to better refining cracks. That’s reflected in the refining margin indicators of leading oil refining companies in the United States in 3Q17 over 3Q16.
Marathon Petroleum’s (MPC) refining margin indicators performed better YoY in 3Q17. In the third quarter, according to MPC, the blended LLS (Louisiana light sweet) crack has risen $4.60 per barrel YoY to $12.70 per barrel. The LLS-WTI (West Texas Intermediate) spread has expanded $1.80 per barrel in 3Q17 over 3Q16. Andeavor’s (ANDV) consolidated refining index values have risen in 3Q17 over 3Q16. Valero Energy’s (VLO) refining crack indicators have expanded in all four zones in which the company operates in 3Q17 over 3Q16.
However, the RIN (renewable identification number) cost is likely to dent the refining earnings growth of the downstream firms in 3Q17.