Refining margins in the third quarter
Refining margins mainly impact refining earnings. Leading US refiners publish refining margin indicators periodically, which show how these margins could be trending. Analyzing these indicators could give us an indication of the company’s refining margin and earnings in its upcoming results.
Marathon Petroleum (MPC), Valero Energy (VLO), Andeavor (ANDV), and HollyFrontier (HFC) publish refining margin indicators regularly. While Andeavor and HollyFrontier publish refining indexes, Marathon Petroleum and Valero Energy publish the blended cracks and spreads and regional refining cracks indicators.
In this part, we’ll analyze the trend in the industry benchmark crack—the US Gulf Coast WTI 3-2-1 crack.
USGC WTI 3-2-1 crack in the third quarter
The USGC WTI 3-2-1 crack shows how much refiners earn when they refine three barrels of crude oil, mainly WTI, to produce two barrels of gasoline and one barrel of distillate. The crack is a vital indicator for refiners that have refining capacities in the US Gulf Coast.
Phillips 66 (PSX) has refined 36% of its refining throughput in the US Gulf Coast in the second quarter. Reviewing the USGC WTI 3-2-1 crack trend in the current quarter could point to the company’s possible margin trend in the region in the third quarter.
The USGC WTI 3-2-1 crack has risen 21% since July 2 to the current level of $19 per barrel. However, if we analyze the average quarterly trend, then the crack has declined. The USSC WTI 3-2-1 crack has fallen 15% YoY to $17 per barrel in the third quarter.
While the crack has risen recently, on a YoY (year-over-year) average quarterly basis it’s still lower. There could be a YoY decline in refining margins for refiners, like Phillips 66, in the region.
Next, we’ll discuss what Marathon Petroleum’s refining indicators suggest.