HollyFrontier’s refining index
HollyFrontier (HFC), a US downstream company, earns most of its income from its refining segment. Refining margins are the main determinant of the company’s refining earnings.
HollyFrontier’s refining index values are benchmark crack indicators in the areas where the company operates. HollyFrontier publishes the index values for three regions—Midcon, Rockies, and Southwest. We’ll evaluate how these index values have trended in the current quarter.
Index values in the first quarter
In the first quarter, the index values have put up a mixed trend YoY (year-over-year). While the index values in the Midcon and the Rockies have fallen YoY, the value has risen in the Southwest. HollyFrontier’s Midcon index value fell by $3.7 per barrel YoY to $11.9 per barrel in the first quarter (considering an average of the values in January and February). The industry crack in the Midcon has fallen in the first quarter. Similarly, the index value in the Rockies has fallen from $15.7 per barrel in the first quarter of 2018 to $13.5 per barrel in the first quarter. However, the value in the Southwest has risen by $3.2 per barrel YoY to $16.9 per barrel in the first quarter. There’s a higher industry crack in the Southwest.
HollyFrontier’s largest refining region is the Midcon, which has the El Dorado and Tulsa refineries. HollyFrontier’s Midcon region accounted for 57% of the company’s refining throughput in 2018. The Rockies and the Southwest processed 17% and 26% of the throughput, respectively, the previous year.
HollyFrontier’s refining margin will likely be impacted the most by the Midcon and the Rockies, which could have lower cracks in the first quarter. However, the impact could be diminished by a possibly higher crack in the Southwest. The regional index values suggest that HollyFrontier’s refining margin could fall YoY in the first quarter based on weaker regional cracks.
Peers’ refining margin indicators
Valero Energy’s (VLO) regional crack indicators point towards a lower refining margin for the company. The US Gulf Coast WTI 3-2-1 crack spread impacts refiners like Phillips 66 (PSX) that have considerable capacities in the region. the US Gulf Coast WTI 3-2-1 crack spread has fallen YoY in the first quarter. Marathon Petroleum’s (MPC) blended crack has fallen YoY in the first quarter.
Next, we’ll discuss how the WTI Cushing and WTI Midland oil spread has trended in the first quarter.