Why WTI-Brent spread matters
A narrower West Texas Intermediate (or WTI)-Brent spread hurts refineries’ margins. Currently, they enjoy cheap inputs in the form of lower priced crude. To learn the latest trend on the WTI-Brent spread, read our article here.
However, the differentials have started narrowing since June. Lately, Brent crude prices have been weak. They fell from levels in excess of $110 earlier this year. Now, they’re short of $100. If the export of U.S. produced crude is allowed, this will boost WTI prices. This will narrow the crude differentials and the company’s margins.
Some of Phillips 66’s (PSX) major refinery assets—like the Bayway Refinery and Alliance—only use light crude oil as feedstock. The rest of the refinery assets use a mix of light and heavy crude. Read Part 3 in this series to learn more about PSX’s refinery assets.
If WTI-Brent narrowed, it would hurt refineries margins like Valero Energy (VLO), Phillips 66 (PSX), Tesoro (TSO), and Marathon Petroleum (MPC). These companies are components of the Energy Sector Select SPDR (XLE).
As a result, it’s expected that the refining segment—PSX’s largest revenue-generation segment—may continue to hurt the company’s profitability if the crude oil spread continues to be pressured.