How Did Valero’s Refining Margin Look in 4Q17?



Valero’s refining margin in 4Q17

Valero Energy’s (VLO) gross refining margin expanded by $0.93 per barrel over 4Q16 to $8.8 per barrel in 4Q17. Its operating costs fell by $0.11 per barrel compared to 4Q16. VLO’s net refining margin expanded by $1.14 per barrel over 4Q16 to $3.6 per barrel in 4Q17. This expansion was due to a rise in VLO’s gross refining margin coupled with a decrease in its operating cost per barrel year-over-year in 4Q17.

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The critical factors that influence Valero’s gross refining margin include refined product cracks, sweet-sour crude oil spreads, and the costs of other feedstocks and blendstocks. In 4Q17, diesel cracks have surged in the US Gulf Coast, the US West Coast, the US Mid-Continent, and the North Atlantic regions. Also, gasoline cracks have surged except for in the US West Coast and North Atlantic regions. Similarly, the Brent-WTI (West Texas Intermediate) oil spread widened in 4Q17 compared to 4Q16. However, Brent-Maya, Brent-LLS (Louisiana Light Sweet), and Brent-ANS (Alaska North Slope) spreads have narrowed year-over-year.

Valero’s peers

Valero’s peer Marathon Petroleum (MPC) saw a rise in its refining margin. MPC’s gross refining and marketing margin rose by $1.8 per barrel over 4Q16 to $13.1 per barrel in 4Q17. The rise was majorly due to the wider blended LLS 6-3-2-1 crack. Plus, refinery utilization stood at 101% in 4Q17 compared to 93% in 4Q16.

Andeavor’s (ANDV) consolidated refining index value has risen in 4Q17 over 4Q16. This rise might result in a higher margin for ANDV in its 4Q17 earnings. Also, Phillips 66 (PSX) is likely to see a surge in its refining margins year-over-year in 4Q17 likely due to a higher USGC WTI 3-2-1 crack in 4Q17 over 4Q16. However, RINs (Renewable Identification Number) costs are likely to dent refining earnings of the downstream firms in 4Q17.


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