BP’s Refining Marker Margin: The Surge in 1Q17



BP’s refining capacity

Before we analyze BP’s (BP) RMM (refining marker margin), let’s take a quick look at its refining capacity.

BP (BP) has 1.9 MMbpd (million barrels per day) of refining capacity worldwide. In the United States, BP has around 0.75 MMbpd of refining capacities in the Northwest and east of the Rockies. About 0.87 MMbpd, another significant portion of refining capacity, is located in Europe, spread over Germany, the Netherlands, and Spain. BP also has a combined capacity of 0.27 MMbpd in Australia, South Africa, and New Zealand.

ExxonMobil (XOM), Chevron (CVX), and Royal Dutch Shell (RDS.A) have refining capacities of 4.9 MMbpd, 1.8 MMbpd, and 3.1 MMbpd, respectively. For integrated energy sector stocks, you can look at the Vanguard Energy ETF (VDE), which has a ~40.0% exposure to the sector.

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BP’s refining marker margin surge in 1Q17

Usually, refining earnings are largely dependent on refining margins. Regional refining margins where BP’s refineries are located include USMW (US Midwest), USNWC (US Northwest Coast), NWE (Northwest Europe), and the Med (Mediterranean).

According to BP, its RMM is “the average of regional indicator margins weighted for BP’s crude refining capacity in each region. Each regional marker margin is based on product yields and a marker crude oil deemed appropriate for the region. The regional indicator margins may not be representative of the margins achieved by BP in any period because of BP’s particular refinery configurations and crude and product slate.”

In 1Q17, downstream earnings fell 4.0% compared to 1Q16 due to turnaround activities. That was somewhat negated by a rise in RMM. The USMW margin rose steeply by $1.90 per barrel over 1Q16 to $11.70 per barrel in 1Q17. USNWC margins rose by $0.30 per barrel to $15.90 per barrel. The NWE and Med margins rose 13.0% and 4.0%, respectively, over 1Q16, to $10.40 per barrel and $9.70 per barrel, respectively, in 1Q17. BP’s average RMM rose $1.20 per barrel over 1Q16 to $11.70 per barrel in 1Q17.

In the next part, we’ll see if there’s any likelihood of improvement in BP’s leverage situation.


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