Did Valero’s Refining Margin Narrow in Q4?



Valero’s refining crack indicators

In the previous article, we saw that Wall Street analysts expect Valero Energy’s (VLO) EPS to fall in the fourth quarter of 2018. Are weaker refining margins the reason for the fall in Valero’s estimated earnings? Let’s find out.

Valero publishes regional refining crack indicators for the areas in which it operates. These indicators point toward the refining crack trend in the region.

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Did Valero’s refining crack indicators fall?

Valero’s crack indicators fell YoY (year-over-year) in three of its four operating zones in the fourth quarter. In the US Gulf Coast, the refining crack indicator fell $7.0 per barrel over the fourth quarter of 2017 to $9.5 per barrel in the fourth quarter of 2018. Also, the US West Coast and North Atlantic indicators fell $1.8 per barrel YoY and $4.5 per barrel YoY, respectively, to $12.4 per barrel and $9.0 per barrel, respectively, in the fourth quarter of 2018. Valero’s refining throughput in these three regions accounted for ~84% of its total throughput in the third quarter. Perhaps the fall in indicators in these regions could signal a fall in Valero’s overall refining margin in the fourth quarter of 2018 over the fourth quarter of 2017.

However, Valero could benefit from the fall in RIN (renewable identification number) prices in the fourth quarter. According to data published by Valero, the prices of ethanol RINs have fallen 84% YoY to an average of 13.1 cents per gallon as of the fourth quarter of 2018. Also, biodiesel RIN prices have fallen 59% YoY to 39.8 cents per gallon as of the fourth quarter. These falls could bring savings for Valero, which has been bearing the brunt of higher RIN expenses.

Peers’ performances

Valero’s peer HollyFrontier’s (HFC) refining index also fell YoY in its primary operating region, the Midcontinent, in the fourth quarter. Also, Marathon Petroleum’s (MPC) leading refining margin indicator, the blended crack, fell YoY in the fourth quarter of 2018.

Move onto the next article to see how Valero stock has trended in the past month.


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