Where Is Tesoro’s Gross Refining Margin Headed in 4Q16?



Tesoro’s refining margin indicators

In this article, we’ll analyze the refining margin indicators published by Tesoro (TSO), Marathon Petroleum (MPC), and Valero Energy (VLO). These indicators point toward the likely margin trend—and, therefore, the profitability trend—in the quarter.

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Tesoro’s GRM

To date in 4Q16, Tesoro’s refining index values, which are regional crack indicators in the areas in which the company operates, have shown mixed trends compared to 3Q16. However, these values have fallen compared to 4Q15.

The index values in the Pacific Northwest and the Midcontinent have fallen to $9.7 per barrel and $12.2 per barrel, respectively, in 4Q16, from $11.3 per barrel and $15.2 per barrel, respectively, in 3Q16. On the other hand, TSO’s California index value has risen to $12.4 per barrel in 4Q16, compared to $12.1 per barrel in 3Q16.

This marginal rise in Tesoro’s California index’s value is likely to be offset by steep falls in value in the Midcontinent and the Pacific Northwest. Tesoro’s GRM (gross refining margin) will likely fall in 4Q16 compared to 3Q16. On a yearly basis, all index values have experienced falls.

Tesoro’s GRM is also influenced by the ANS (Alaskan North Slope) West Coast 3-2-1 crack spread and the WTI (West Texas Intermediate) Midcontinent 3-2-1 crack spread. Both cracks have fallen quarter-over-quarter in 4Q16. The Midcontinent 3-2-1 crack has fallen from $14.6 per barrel in 3Q16 to $10.6 per barrel in 4Q16. The West Coast crack has fallen from $17.1 per barrel in 3Q16 to $13.9 per barrel in 4Q16. On a yearly basis, both crack spreads have fallen.

For global stock exposure, you may want to consider the Vanguard Total World Stock ETF (VT). Let’s move onto the next article to look at MPC’s refining margin indicators.


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