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Did Valero Energy’s Refining Margin Expand in Q4?


Feb. 1 2019, Published 8:06 a.m. ET

Valero Energy’s refining margin

Valero Energy (VLO) posted its fourth-quarter results on January 31. The company beat analysts’ estimate. To learn more, read Valero’s Q4 Earnings Posted a Surprise, Refining Margins Rose.

Valero Energy’s gross refining margin rose from $8.8 per barrel in the fourth quarter of 2017 to $11.0 per barrel in the fourth quarter. The company’s operating costs rose by $0.5 per barrel YoY (year-over-year). Valero Energy’s net refining margin increased by $1.8 per barrel YoY to $5.4 per barrel in the fourth quarter. The increase was due to a rise in Valero Energy’s gross refining margin. The increase was partially offset by an increase in the company’s operating cost per barrel YoY in the fourth quarter.

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Valero Energy’s refining margins rose. The company utilized its midstream assets to process more discounted North American crude oil. The company could utilize the Sunrise pipeline expansion, Line 9B, and the Diamond pipeline to tap the North American oil. Most of the oil spreads were larger YoY in the fourth quarter. The Brent-WTI (West Texas Intermediate), Brent-LLS (Louisiana Light Sweet), and Brent–ASCI (Argus Sour Crude Index) spread widened YoY in the fourth quarter, which supported Valero Energy’s margins.

In the fourth quarter, gasoline cracks declined across Valero Energy’s operating zones like the US Gulf Coast, the US West Coast, the US Mid-continent, and the North Atlantic. Diesel cracks put up a mixed trend.

Valero’s peers

HollyFrontier’s (HFC) refining index value has narrowed YoY in Midcon—its main operating region. Lower index values suggest weaker refining margins for HollyFrontier in the fourth quarter.

The benchmark crack, the USGC WTI 3-2-1, fell 19% compared to the fourth quarter of 2017 to $15 per barrel in the fourth quarter. The fall might impact the margins of refiners with capacities in the US Gulf Coast. The US Gulf Coast is a significant refining area for Phillips 66 (PSX), which accounts for ~35% of its crude oil throughput.


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