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In Which Direction Are Valero’s Oil Spreads Moving?

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Valero’s oil spreads

In the earlier part, we analyzed Valero Energy’s (VLO) refining crack indicators trend in the second quarter. Now, we’ll look at the trends in VLO’s oil spread indicators. Different oil spreads impact Valero’s refining margin in different regions, which we discussed in the previous part.

For instance, the Brent-ANS (Alaskan North Slope crude oil) oil spread affects VLO’s margin in the USWC (US West Coast) region, and the Brent-WTI (West Texas Intermediate) spread affects VLO’s margin in the Midcon (US Mid-continent) region. Other prominent spreads are the Brent-Maya, Brent-ASCI (Argus Sour Crude Index), and Brent-LLS (Louisiana Light Sweet crude oil) spreads, which affect VLO’s margin in the USGC (US Gulf Coast) region.

Oil spreads play a significant role in determining VLO’s refining margin. The larger the spread, the healthier it is for Valero’s margin. In the second quarter, sequentially, spreads have risen.

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Brent-Maya saw the largest expansion in the second quarter. The Brent-Maya spread has expanded by $4.50 per barrel sequentially to $14.00 per barrel in the second quarter so far. Other spreads impacting VLO’s USGC margin, Brent-LLS and Brent-ASCI, have also expanded sequentially in the current quarter.

The Brent-WTI spread expanded by $1.20 per barrel sequentially to $5.60 per barrel in the second quarter so far. Brent-ANS also expanded sequentially. The Brent-WTI spread has touched a three-year high after the US withdrew from the Iran nuclear deal. For more, please refer to Brent-WTI Spread Expands to 3-Year Record.

The expanding spreads can positively impact Valero’s earnings. Also, on a YoY (year-over-year) basis, the spreads have put on a similar performance.

Oil spreads in peers

VLO’s peers’ refining margins are also affected by several oil spreads. Delek US Holdings’ (DK) refining margin is affected by the Midland WTI-Cushing WTI spread. The WTI-WCS (Western Canadian Select crude oil) and the WTI-Maya spreads impact Phillips 66’s (PSX) margins.

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