MPC’s segment earnings trend
Marathon Petroleum’s (MPC) refining segment’s operating income fell by 80% to $207 million in 4Q15 compared to 4Q14. This was due to an inventory valuation adjustment charge of $345 million levied on the refining segment. Plus, the gross refining and marketing margin fell by $2.4 per barrel over 4Q14 to $12.7 per barrel in 4Q15. Operating income from the speedway segment also fell by 51% over 4Q14. However, the midstream segment’s income rose by 22% over 4Q14.
MPC’s peers Valero Energy (VLO) and Tesoro (TSO) have witnessed a fall in refining margins by $0.3 and $3 per barrel over 4Q14 to $10.9 and $12.8 per barrel, respectively, in 4Q15. However, Phillips 66 (PSX) noted a marginal rise of $0.1 per barrel over 4Q14 to $9.4 per barrel in 4Q15. The PowerShares Dynamic Large Cap Value ETF (PWV) has ~11% exposure to energy sector stocks including MPC, VLO, and PSX.
MPC’s refining segment outlook for 1Q16
MPC’s refining earnings are impacted by the blended LLS 6-3-2-1 crack, the sweet-sour differential, and the LLS-WTI spread. Per MPC, a dollar per barrel change in the blended LLS 6-3-2-1 crack spread affects its annual net income by $450 million. Similarly, a dollar per barrel change in the sweet-sour and LLS-WTI affects its income by $220 million and $90 million, respectively.
In 1Q16, per MPC, the blended LLS crack has declined by $5 per barrel over 1Q15 to $4.6 per barrel. This fall is likely to cause a negative impact on MPC’s refining segment earnings.
Plus, the LLS-WTI spread and the sweet-sour differential have fallen in 1Q16 compared to 1Q15. The LLS-WTI spread fell by $2.6 per barrel over 1Q15 to $1.7 per barrel in 1Q16. Also, the sweet-sour differential narrowed by $0.31 per barrel over 1Q15 to $6.8 per barrel in 1Q16.