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Have HollyFrontier’s Refining Index Values Fallen in Q4?

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Dec. 6 2018, Published 2:09 p.m. ET

HollyFrontier’s refining index

American downstream company HollyFrontier (HFC) earns most of its income from its Refining segment. Refining margins are the primary determinant of a company’s refining earnings.

HollyFrontier’s refining index values, the benchmark indicators in the regions in which the company operates, point toward the company’s likely refining margin trend. HollyFrontier publishes these index values for three regions: the Midcontinent, the Rockies, and the Southwest. Let’s evaluate how these index values have trended in the current quarter.

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Index value trend in the fourth quarter

In the current quarter, the regions’ index values have put up a mixed trend YoY (year-over-year). While the index value in the Midcontinent has fallen YoY, the values have risen in the Rockies and the Southwest. HollyFrontier’s Midcontinent index value has fallen $2.6 per barrel YoY to $16.1 per barrel in the fourth quarter (considering an average of its values in October and November), meaning the industry margin in the Midcontinent could fall in the fourth quarter.

However, the Rockies’ and Southwest’s values have risen $8.0 per barrel YoY and $6.1 per barrel YoY, respectively, to $29.5 per barrel and $28.2 per barrel, respectively, in the current quarter, pointing to the likelihood of higher margins in these regions.

HollyFrontier’s largest refining region is the Midcontinent, which includes its El Dorado and Tulsa refineries. HollyFrontier’s Midcontinent region accounted for 59% of the company’s total crude throughput in the third quarter. The Rockies and Southwest regions processed 16% and 25% of HollyFrontier’s total throughput, respectively, in the third quarter.

Thus, HollyFrontier’s refining margin will be most affected by the Midcontinent region, which could have lower margins in the fourth quarter. However, the impact could be diminished by the possibility of higher margins in the Rockies and the Southwest. Overall, regional index values suggest that HollyFrontier’s refining margin could fall YoY in the fourth quarter.

Peers’ refining margin indicators

Comparatively, Valero Energy’s (VLO) important crack indicators point toward a lower refining margin for the company. Plus, the US Gulf Coast WTI 3-2-1 benchmark, which affects refiners that have considerable capacities in the region, such as Phillips 66 (PSX), has also slumped YoY in the quarter so far. However, Marathon Petroleum’s (MPC) blended crack is flat YoY in the quarter.

Move on to the next article to see how the WTI Cushing–WTI Midland oil spread has trended in the quarter.

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