Will Tesoro’s Refining Margins See a Boost in 2Q17?



So far in this series

Up to this point in our series, we’ve compared four major US refining companies’ leverages, cash flows, shareholder returns (dividends and share repurchases), ROEs (return on equity), operating earnings models, refining throughputs, yields, and gross refining margins in 1Q17.

Now, we’ll analyze the refining margin indicators most recently published by Tesoro (TSO), Marathon Petroleum (MPC), and Valero Energy (VLO). These indicators point toward a likely margin—and, therefore, the profitability—trend for the current quarter.

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Tesoro’s refining margin indicators

In 2Q17 to date, Tesoro’s refining index values, which refer to regional crack indicators in the areas where TSO operates, have shown improvements as compared to 1Q17 on a Q0Q (quarter-over-quarter) basis.

The index values in the California and Pacific Northwest regions risen to $14.6 per barrel and $11.8 per barrel in 2Q17, respectively, from $13.0 per barrel and $9.8 per barrel, respectively, in 1Q17.

TSO’s Mid-Continent index value surged sharply to $15.5 per barrel in 2Q17 from $13.1 per barrel in 1Q17. On a consolidated basis, TSO’s index has risen $1.8 per barrel over 1Q16 to $14.2 per barrel in 2Q17 to date. This rise points to a likely increase in Tesoro’s GRM (gross refining margin) in 2Q17 as compared to 1Q17.

Rises in Pacific Northwest and Mid-Continent index values

However, on a YoY (year-over-year) basis, the marginal fall in California values is likely to be offset by increases in the Pacific Northwest and Mid-Continent index values. Tesoro’s consolidated index has risen $0.2 per barrel over 2Q16 to $14.2 per barrel in 2Q17 to date, indicating a likely increase in TSO’s refining margin in 2Q17 over 2Q16.

If you want exposure to big US refining companies, you might check out the SPDR S&P 500 ETF (SPY) and the SPDR Dow Jones Industrial Average ETF (DIA), both of which have ~6% exposure to energy sector stocks. SPY also contains MPC, VLO, TSO, and PSX in its portfolio.

For exposure to small-cap stocks, you might consider the iShares Russell 2000 Value ETF (IWN), which has ~5% exposure to energy sector stocks.


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