What Happened to Valero’s Refining Margin in 2Q17?

Valero’s refining margin in 2Q17

In 2Q17, Valero Energy (VLO) noted a rise in its GRM (gross refining margin) by $0.07 per barrel over 2Q16 to $8.66 per barrel in 2Q17. Its operating costs rose $0.09 per barrel on a YoY (year-over-year) basis.

VLO’s net refining margin fell $0.02 per barrel over 2Q16 to $3.49 per barrel in 2Q17. This was due to a steeper rise in VLO’s operating cost per barrel compared to the YoY rise in its gross refining margin in 2Q17.

What Happened to Valero’s Refining Margin in 2Q17?

The important factors influencing Valero’s GRM are refined product cracks, the sweet-sour crude oil spreads, and the costs of other feedstocks and blendstocks. In 2Q17, gasoline and diesel cracks showed a mixed trend in the US Gulf Coast, the US West Coast, the US Mid-Continent, and the North Atlantic.

Similarly, the Brent-WTI (West Texas Intermediate) and Brent-LLS (Louisiana Light Sweet) oil spreads widened in 2Q17 YoY. However, the Brent-Maya and Brent-ANS (Alaska North Slope) spreads narrowed YoY.

Valero’s peers

Peer Marathon Petroleum (MPC) noted a decline in its refining margin. MPC’s gross refining and marketing margin fell $1.4 per barrel over 2Q16 to $11.3 per barrel in 2Q17.

The decline in MPC’s margin was primarily due to higher oil and feedstock costs, led by a narrow sweet-sour spread. This was partially offset by the wider blended LLS 6-3-2-1 crack.

Tesoro’s (TSO) consolidated refining index value has risen from $13.9 per barrel in 2Q16 to $14.7 per barrel in 2Q17. This could result in a higher margin for TSO in its 2Q17 earnings.

Phillips 66 (PSX) is likely to see a surge in its refining margins YoY in 2Q17, likely due to the higher USGC WTI 3-2-1 crack in 2Q17 YoY. Still, RIN (renewable identification number) costs are likely to dent the refining earnings of all downstream firms in 2Q17.