Must-know: Phillips 66’s Marketing and Specialties segment

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Nov. 20 2020, Updated 3:07 p.m. ET

Marketing & Specialties segment overview

Phillips 66 (PSX) markets its refined products like gasoline, diesel, and aviation fuel under the “Phillips 66,” “Conoco,” or “76” brand.

PSX’s Specialties segment sells the company’s manufactured products—including petroleum coke products, waxes, solvents, and polypropylene.

Warren Buffett’s involvement

In December 2013, PSX disclosed that Warren Buffett’s Berkshire Hathaway was acquiring the shares of PSX’s Phillips Specialty Products Inc. (or PSPI)—a flow improver business. This was in exchange for Mr. Buffett’s $1.4 billion shares of PSX back to the company.

1H14 versus 1H13 prices

Average sales price for gasoline decreased marginally to $2.94 per gallon in 1H14—from $2.97 per gallon in 2H13. Distillates price increased marginally to $3.11 per gallon—from $3.09 during the same period.

Phillips 66’s diverse marketing strategies

PSX uses the wholesale channel of trade. It takes less capital to build this supply chain model. It also leverages its sales model through brand-licensing agreements. It markets on a branded and unbranded basis.

The segment generates the majority of the branded products business from the Midcontinent, Rockies, and West Coast regions. These regions are close to the company’s refineries. For the Gulf Coast and East Coast regions, the strategy of selling unbranded products works more effectively for PSX.

The company enters into multi-year consignment fuel agreements. The company keeps the selling power while it pays the marketer a fixed fee.

In the international markets, it sells its products through retailers. The majority of its European operations are company-owned—64%—while the rest are dealer-owned.

Marketing & Specialties segment earnings swing up

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In 2013, the Marketing & Specialties segment’s net profit went up 89% to $790 million—from $417 million in 2012. The improved performance was a result of higher Renewable Identification Numbers (or RINs) prices. They’re associated with renewable fuels blending activities and higher international marketing margins. This more than offset its U.S. operation’s weaker margin.

RIN is a serial number assigned to a batch of biofuel. The number allows the Environmental Protection Agency (or EPA) to track the segment’s production, use, and trading.

In 1H14, the segment’s net profit declined 44%—compared to 1H13. The higher margin from favorable RIN product valuation was absent in 2014.

Key stocks and exchange-traded funds (or ETFs)

Other refining companies include Valero Energy Corp. (VLO), Tesoro Corp. (TSO), and HollyFrontier Corp. (HFC). Some of these companies are components of the Energy Select Sector SPDR ETF (XLE).

Visit the Market Realist Energy & Power page to learn more about the industry.

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