What Does Tesoro’s Refining Index for 2Q16 Suggest?


Dec. 4 2020, Updated 10:52 a.m. ET

Tesoro’s refining margin trend

Before analyzing Tesoro’s (TSO) refining index for 2Q16, let’s take a look at TSO’s refining margin trend up to 1Q16.

TSO noted a fall of $2 per barrel YoY (year-over-year) in its GRM (gross refining margin) to $9.7 per barrel in 1Q16. Its operating costs fell by $0.8 per barrel YoY to $5.6 per barrel in 1Q16. This fall in its gross margin was partly offset by a fall in its operating costs.

TSO’s peers HollyFrontier (HFC), Valero Energy (VLO), PBF Energy (PBF), and Phillips 66 (PSX) saw their refining margins narrow by $9.7, $4.4, $5.6, and $5.2 per barrel, respectively, over 1Q15 to $7.6, $8, $5, and $7.1 per barrel, respectively, in 1Q16.

The iShares Russell 1000 Value ETF (IWD) has ~13% exposure to energy sector stocks.

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Tesoro’s refining index

In 2Q16, Tesoro’s refining index values, regional crack indicators in the areas in which TSO operates, have risen compared to 1Q16. The index value in California stands at $14.6 per barrel in 2Q16 compared to $13.4 per barrel in 1Q16.

Similarly, Pacific Northwest and midcontinent index values stood at $11.1 per barrel and $14.7 per barrel, respectively, in 2Q16, compared to $8.5 per barrel and $10.8 per barrel, respectively, in 1Q16. This points toward a likely rise in Tesoro’s GRM in 2Q16 compared to 1Q16. On a yearly basis, however, all the index values have seen falls.

Tesoro closely tracks the ANS (Alaskan North Slope) West Coast 3-2-1 and the WTI (West Texas Intermediate) Midcontinent 3-2-1 cracks. Both cracks have risen in 2Q16 compared to 1Q16. The higher cracks imply likely strength in Tesoro’s 2Q16 GRM on a sequential basis. On a yearly basis, both cracks have fallen.


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