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Where Is Andeavor Headed in 4Q17?

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Part 2
Where Is Andeavor Headed in 4Q17? PART 2 OF 15

Andeavor’s 4Q17 Refining Index: Could Margins Sustain 3Q17 Levels?

Andeavor’s refining index

In 4Q17 so far, Andeavor’s refining index values, which are regional crack indicators in the areas where ANDV operates, have shown quarter-over-quarter weakness compared to 3Q17.

Respectively, the index values in California and the Pacific Northwest have fallen to $12.30 per barrel and $12.00 per barrel in 4Q17 quarter-to-date from $16.50 per barrel and $15.70 per barrel in 3Q17.

Andeavor’s 4Q17 Refining Index: Could Margins Sustain 3Q17 Levels?

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ANDV’s Midcontinent index value has declined to $19.00 per barrel in 4Q17 quarter-to-date from $20.10 per barrel in 3Q17.

American refiners had observed a steep rise in refining margins in 3Q17, primarily due to Hurricane Harvey. With the fading effects of Harvey, refiners could post a decline in refining margins in 4Q17.

On a consolidated basis, ANDV’s index has fallen $3.00 per barrel over 3Q17 to $14.80 per barrel in 4Q17 quarter-to-date. This points toward a fall in Andeavor’s refining margins in 4Q17 compared to 3Q17.

Andeavor’s refining index rose year-over-year

However, index values in all three regions have risen year-over-year. Andeavor’s consolidated index rose $4.20 per barrel over 4Q16 to $14.80 per barrel in 4Q17 quarter-to-date. This trend indicates the possibility of an increase in ANDV’s refining margin in 4Q17 over 4Q16.

Peers’ projected margins in 4Q17

Like ANDV, Marathon Petroleum (MPC) also publishes refining margin indicators. So far in 4Q17, MPC noted that the blended LLS crack has contracted in 4Q17 over 3Q17. However, the sweet-sour differential and the LLS-WTI spread have expanded.

The contraction in blended LLS crack could offset expansion in the differential and the spread. The situation points toward a likely fall in MPC’s refining earnings in 4Q17 over 3Q17.

MPC’s RINs (Renewable Identification Numbers) expense has remained constant quarter-over-quarter in 4Q17. This implies that refining earnings would be impacted by the RINs burden in 4Q17.

All four of Valero Energy’s (VLO) regions have seen a decrease in average regional cracks in 4Q17 compared to 3Q17. This points toward the likely fall in VLO’s refining margins in 4Q17 over 3Q17.

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