4Q15 Pre-Earnings: WNR’s Refining Margin Trend



Refining margin

In 3Q15, Western Refining’s margins fell compared to 3Q14. However, the margins rose compared to 2Q15. In fact, its 3Q15 margins stand at the highest levels in 2015. Western Refining noted a rise in the GRM (gross refining margin) by $1.4 per barrel compared to 2Q15. It rose to $21.1 per barrel in 3Q15. The operating costs fell by around $0.2 per barrel. This led to a rise in the net refining margin by $1.6 per barrel compared to 2Q15. It rose to $16 per barrel in 3Q15. In 3Q15, Western Refining’s refinery throughput rose by 2% compared to 2Q15. It rose to 165,000 barrels per day.

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Western Refining’s peers also witnessed a rise in their GRMs. Marathon Petroleum (MPC), Tesoro (TSO), and Phillips 66 (PSX) saw their GRMs widen by $2.4, $1.4, and $2.3 per barrel compared to 2Q15. They rose to $17.3, $20.5, and $14 per barrel in 3Q15. The PowerShares Dynamic Large Cap Value ETF (PWV) has ~10% exposure to energy sector stocks including Marathon Petroleum and Phillips 66.

Refining margin outlook for 4Q15

In 4Q15, Western Refining’s refining segment earnings, which depend on refining margins, will likely be stressed. The key factor that impacts Western Refining’s GRM is refined product cracks. In 4Q15, gasoline cracks narrowed as a result of falling gasoline prices compared to 3Q15. The prices fell due to a huge pile-up of gasoline stocks in the US in 4Q15. This will likely weaken refiners’ GRMs in 4Q15.

A point in case is the broader market US Gulf Coast West Texas Intermediate 321 crack spread. It’s the refining market indicator. It fell in 4Q15. The crack spread averaged $16 per barrel in 3Q15. It fell to $9 per barrel in 4Q15.


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