BP’s downstream earnings
In the previous part, we discussed the outlook for BP’s (BP) upstream earnings. In this part, we’ll discuss the outlook for BP’s downstream earnings in the first quarter.
BP’s downstream earnings depend on the refining margin, which is influenced by regional refining cracks.
BP calculates the RMM (refining marker margin), which is an average of regional cracks weighted for the company’s regional refining capacity. According to BP, a $1 per barrel shift in its RMM shifts its pre-tax replacement cost operating profit by $500 million annually.
BP’s RMM trend in the first quarter
So far in the first quarter, BP’s RMM has fallen YoY (year-over-year) and sequentially.
BP’s RMM has fallen from $11.7 per barrel in the first quarter of 2018 to $7.8 per barrel in the first quarter. The RMM fell due to an across-the-board decline in the company’s regional refining cracks. So far, the USNW (US North West) has the highest fall in the crack. The USNW crack has fallen 42% YoY to $9.1 per barrel in the first quarter. The US Midwest crack has fallen 38% YoY to $8.1 per barrel. The fall could impact the company’s refining margin in the United States, which refined ~42% of the company’s total crude oil throughput in the fourth quarter.
The European region refined 44% of BP’s throughput. So far, the Northwest Europe crack has fallen 24% YoY. The Mediterranean and Australia’s refining cracks have also declined YoY in the first quarter.
The fall in the crack in BP’s principal operating areas and a decline in the RMM imply a lower refining margin for the company YoY in the first quarter. The decline could impact the company’s downstream earnings in the first quarter.