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Will HFC Benefit from the WTI Cushing–WTI Midland Spread in Q4?


Dec. 6 2018, Updated 3:40 p.m. ET

WTI Cushing–WTI Midland spread

In the previous article, we discussed HollyFrontier’s (HFC) fourth-quarter refining index trend. We saw that in the current quarter, regional index values point to a likely fall in the company’s refining margin.

In this article, we’ll look at the oil spread trend. Oil spreads also affect HollyFrontier’s refining margin. Thus, oil spreads could indicate the likely impact of the use of discounted crude oil on the company’s refining margin. Let’s review one of the vital oil spreads for HollyFrontier: WTI Cushing–WTI Midland.

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WTI Cushing–WTI Midland spread trend

The WTI Cushing–WTI Midland oil spread strongly impacts HollyFrontier’s refining margin because HollyFrontier’s refineries can process WTI Midland crude. HollyFrontier can refine 140,000-160,000 barrels of Permian oil per day.

This crude can be bought at a discount to WTI Cushing, the benchmark crude oil, which is supportive of HollyFrontier’s refining margin. The wider the oil spread, the better it is for HollyFrontier.

The WTI Cushing–WTI Midland oil spread is averaging $5.9 per barrel in the fourth quarter so far compared to -$0.3 per barrel in the fourth quarter of 2017. The increase in the oil spread could expand HollyFrontier’s refining margin and earnings year-over-year in the fourth quarter.

In short

In the fourth quarter, HollyFrontier’s refining margin could benefit from a wider oil spread. At the same time, a weaker regional industry margin could negatively affect HollyFrontier, as we discussed in the previous article.

Overall, HollyFrontier is facing moderate refining conditions in the fourth quarter as presented by the mixed trend in regional industry margins and oil spreads.

In the next article, we’ll analyze Wall Street analysts’ opinions on HollyFrontier.


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