Refining margin indicators
So far, we have examined the crude oil and refined products price trend. We also discussed the factors affecting gross refining margins (or GRM).
Now, we’ll analyze the refining margin indicators published by refiners like Tesoro Corporation (TSO), Marathon Petroleum Corporation (MPC), HollyFrontier Corp (HFC), and Valero Energy Corporation (VLO). These indicators point toward the likely margin trend in the quarter.
Tesoro (TSO) publishes refining index values that are regional crack indicators in the areas where its refineries operate. In 2Q16 to date, Tesoro’s refining index values, which are regional crack indicators in the areas where TSO operates, have risen compared to 1Q16. However, they have fallen compared to 2Q15.
The index value in California stands at $14.30 per barrel in 2Q16 compared to $13.40 per barrel in 1Q16. Similarly, the Pacific Northwest and Midcontinent index values stood at $10.40 per barrel and $14.90 per barrel in 2Q16, compared to $8.30 per barrel and $10.80 per barrel in 1Q16, respectively. This points toward the likely rise in Tesoro’s GRM in 2Q16 compared to 1Q16. However, on a yearly basis, all the index values have noted a decline.
Also, Tesoro (TSO) closely tracks ANS (Alaskan North Slope) West Coast 3-2-1 and WTI (West Texas Intermediate) Midcontinent 3-2-1 cracks. Both of these cracks have risen in 2Q16 compared to 1Q16. West Coast 3-2-1 crack has risen from $15.90 per barrel in 1Q16 to $19.50 per barrel in 2Q16.
Similarly, Midcontinent crack has risen from $10.50 per barrel in 1Q16 to $12.80 per barrel in 2Q16. The higher cracks imply likely strength in Tesoro’s (TSO) 2Q16 GRM on a sequential basis. However, on a yearly basis, both of the cracks have declined.
For global stock exposure, you could consider the Vanguard Total World Stock ETF (VT). Let’s move to the next part for refining margin indicators of MPC and HFC.