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.
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.