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Have Refining Margins Fallen in the Fourth Quarter?



Refining margins in the fourth quarter

Refining margins impact refiners’ earnings. Leading American refiners publish refining margin indicators, which show how these margins could be trending currently. Thus, these indicators could give us a sense of how companies’ refining margin and earnings may look in upcoming results.

Marathon Petroleum (MPC), Valero Energy (VLO), and HollyFrontier (HFC) publish refining margin indicators regularly. While HollyFrontier publishes the refining index, Marathon Petroleum and Valero publish the blended cracks and spreads and regional refining crack indicators. We’ll discuss these in detail in the next few parts.

Here we’ll analyze the trend in the industry benchmark crack, the US Gulf Coast WTI 3-2-1 crack.

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USGC WTI 3-2-1 crack in the fourth quarter

The USGC WTI 3-2-1 crack shows how much refiners earn when they refine three barrels of crude oil (namely 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 35% of its total throughput in the US Gulf Coast in the first nine months of 2018. Thus, the USGC WTI 3-2-1 crack trend in the current quarter could indicate the possible margin trend of the company in the region in Q4 2018.

The USGC WTI 3-2-1 crack has fallen by 33% over October 1, 2018, the beginning of the current quarter, to the current level of $13 per barrel. Also, on an average quarterly basis, the crack has declined. The USSC WTI 3-2-1 crack has fallen by 18% YoY to $15 per barrel in Q4 2018 quarter-to-date.

So, the crack has slumped in the quarter, taking its quarterly average lower than the fourth quarter of the previous year, which points towards a likely year-over-year decline in refining margin for refiners like PSX in the region.

Move onto the next part to know about what Marathon Petroleum’s refining indicators suggest.


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