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Will Valero’s Refining Margins Surge in 4Q17?

Maitali Ramkumar - Author
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Aug. 18 2020, Updated 4:43 a.m. ET

Valero’s refining margin indicators

Earlier in this series, we analyzed Andeavor’s (ANDV) refining index and Marathon Petroleum’s (MPC) refining margin indicators for 4Q17. Now, we’ll analyze the refining margin indicators published by Valero Energy (VLO). These indicators point toward VLO’s likely margin trend in 4Q17.

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Refining cracks fall in December 2017

Valero Energy (VLO) announces area-wise crack indicators where its refineries operate. The four regions where Valero operates its refineries are US Gulf Coast (or USGC), US Midcontinent (or Midcon), US West Coast (or USWC), and North Atlantic.

Valero’s crack indicators have fallen in all the areas in December 2017 compared to November 2017. The USGC crack indicator fell from $16.90 per barrel in November to $15.20 per barrel in December.

Midcon, USWC, and North Atlantic decreased by $4.10 per barrel, $6.50 per barrel, and $3.40 per barrel, respectively, over November. The fall in refining cracks in all four areas could point toward a weakened margin environment for VLO in December 2017 compared to November 2017.

Valero’s refining margins likely to rise in 4Q17 over 3Q17

VLO’s four regions have seen a decline in average regional cracks in 4Q17 compared to 3Q17. VLO’s Midcon crack indicator fell from $18.50 per barrel in 3Q17 to $16.50 per barrel in 4Q17.

Similarly, USWC and North Atlantic indicators fell by $6.90 per barrel quarter-over-quarter and $3.40 per barrel quarter-over-quarter, respectively, in 4Q17.

The USGC crack fell by $2.40 per barrel over 3Q17 to $16.50 per barrel in 4Q17. The fall in all four zones in points toward the likely decline in VLO’s refining margins in 4Q17 over 3Q17.

Year-over-year trends

On a yearly basis, cracks have risen in three of the four areas. Midcon witnessed the largest rise in margin indicator in 4Q17 over 4Q16. But North Atlantic crack fell by $0.60 per barrel YoY to $13.50 per barrel in 4Q17. The USWC margin rose by $0.20 per barrel over 4Q16 to $14.20 per barrel in 4Q17.

The USGC and Midcon cracks have widened by $0.90 per barrel and $5.50 per barrel, respectively, over 4Q16 to $16.50 per barrel each in 4Q17.

So, a year-over-year rise in three of the four areas implies a likely surge in Valero’s refining margin in 4Q17 over 4Q16.

If you’d like to know about the ranking of refiners based on their dividend yields, you can refer to Ranking Key Refining Stock Dividend Yields: Who Stands Where?

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