US Gulf Coast 3:2:1 crack spread
The benchmark US Gulf Coast 3:2:1 crack spread rose~39.3% last week. It hit ~$9.30 per barrel on Friday, October 23, 2015. On Friday, October 16, the spread was ~$6.70 per barrel. For context, the US Gulf Coast crack spread peaked at ~$26 on August 12. The lowest crack spread levels this year reached ~$3.50 early in January.
What does it mean?
The above graph illustrates the US Gulf Coast 3:2:1 crack spread over several days. The 3:2:1 crack spread reflects a theoretical calculation of the difference between the price of two barrels of gasoline and one barrel of distillate fuel, and the cost of three barrels of crude oil where these products are assumed to be produced.
Crack spreads usually rise when crude oil prices (USO) increase by less than product prices, or when product prices fall less than crude oil prices. The latter was the case in the week ended October 23. WTI prices fell 5.6%, while gasoline prices fell 1.8% and diesel prices fell ~2.8%.
Why watch crack spreads?
Crack spreads represent the price difference between refiners’ revenue derived from the sale of finished refined products and refiners’ costs or the price of crude oil (USO). So they’re an important metric that drives refiner profitability and market valuation. This is something investors in refiner stocks should watch.
A wider crack spread increased the profit margins of refiners such as Valero Energy (VLO), Phillips 66 (PSX), Marathon Petroleum (MPC), and Tesoro (TSO). They can purchase raw materials or inputs at a lower rate. Conversely, narrower crack spreads can lower profit margins for refiners. Together, these companies account for ~12% of the Energy Select Sector SPDR ETF (XLE).
The above companies spun off some of their midstream assets to form Valero Energy Partners (VLP), Phillips 66 Partners (PSXP), MPLX (MPLX), and Tesoro Logistics (TLLP). These are all midstream MLPs. A wider crack spread would indirectly benefit these companies. Higher volumes produced by their refining parents in response to lower input costs would mean higher volume to transport. This could boost the MLPs’ revenue. For more on crack spreads, please read Crack Spread 101.
For the latest updates on the energy sector, please visit Market Realist’s Energy and Power page.
Management at Apple has always maintained that for Apple to keep growing at an exponential rate, it needs to post impressive sales numbers in China.
Broadcom (AVGO) stock fell ~8.5% after markets closed yesterday following the semiconductor giant's fiscal 2019 second-quarter earnings release. It missed analysts' revenue estimate and cut its fiscal 2019 revenue guidance by $2 billion to $22.5 billion due to sluggishness in its semiconductor solutions business.
The SPDR Gold Shares ETF (GLD), which tracks physical gold prices, has underperformed the broader markets year-to-date, rising just 4.4% compared to the S&P 500’s (SPY) gain of 15.9% as of June 14. The sentiment for gold, however, has been turning around.
Safe havens such as Treasuries and gold were back in favor on June 14 as stocks fell due to rising tensions in the Middle East, concerns over growth, and the looming threat of the US-China trade war. The tech-heavy Nasdaq Composite Index fell 0.67% in the first hour of trading.
Lululemon (LULU) stock rose 2.1% on June 13 in reaction to better-than-expected first-quarter results and an upgraded outlook for fiscal 2019 overall. The company's first-quarter adjusted EPS grew 34.5% to $0.74 on revenue growth of 20.4% to $782.32 million. Analysts had expected EPS of $0.70 and revenue of $755.31 million. Here's why the outlook got an upgrade.
As of 4:40 AM Eastern Time today, US crude oil active futures were at $51.83, ~4% below their closing level in the previous week. If US crude oil prices stay at those levels today, they'll mark their third week of decline in five weeks.
Amazon is discontinuing its Amazon Restaurants service, which has been delivering food for restaurants in parts of the United States. Amazon Restaurants launched in the United States in 2015 and entered the British market the following year. However, it met strong opposition in the British market.