MPC’s refining earnings indicator
MPC’s refining earnings are impacted by the blended LLS (light Louisiana sweet) 6-3-2-1 crack, the sweet-sour differential, and the LLS-WTI (West Texas Intermediate) spread. According to MPC, a dollar-per-barrel change in the blended LLS 6-3-2-1 crack affects its annual net income by $450 million. Similarly, dollar-per-barrel changes in the sweet-sour and LLS-WTI spreads affect its income by $220 million and $90 million, respectively.
MPC’s refining margin indicators in 3Q16
According to MPC, in 3Q16, the blended LLS crack has fallen by $0.87 per barrel to $6.8 per barrel over 2Q16. On a yearly basis, the crack has fallen. The LLS-WTI spread has also fallen on both a yearly and a sequential basis.
On the other hand, the sweet-sour differential has risen yearly, but it has fallen sequentially. The differential stood at $6.2 per barrel in 3Q16 compared to $6.9 per barrel in 2Q16 and $5.9 per barrel in 3Q15.
The falls in all three indicators in 3Q16 compared to 2Q16 imply that MPC’s refining earnings will likely fall on a sequential basis. On a yearly basis, the rise in the sweet-sour differential will presumably be offset by falls in the LLS-WTI spread and in blended LLS crack.
The iShares Global Energy ETF (IXC) has ~5% exposure to the refining sector.