Did Valero Energy’s Refining Margin Narrow in Q1?

Refining crack indicators

Analysts expect Valero Energy’s (VLO) EPS to fall in the first quarter. Are weaker refining margins responsible for the fall in Valero Energy’s estimated earnings?

Valero Energy publishes refining crack indicators for the areas where it operates. The indicators show the refining crack trend in the region.

Did Valero Energy’s Refining Margin Narrow in Q1?

Did the refining crack indicators fall?

Valero Energy’s crack indicators fell year-over-year in three of its four operating zones in the first quarter. In the US Gulf Coast, the refining crack indicator fell by $5.3 per barrel compared to the first quarter of 2018 to $10.3 per barrel in the first quarter. The US West Coast and North Atlantic crack indicators fell by $3.5 per barrel YoY and $2.9 per barrel YoY, respectively, to $12.0 per barrel and $8.9 per barrel, respectively, in the first quarter. Valero Energy’s refining throughputs in these three areas accounted for ~84% of its total throughput in 2018. The fall in the crack indicators in these regions could mean a decline in Valero Energy’s overall refining margin in the first quarter compared to the first quarter of 2018.

Valero Energy could benefit from the decline in RIN (renewable identification number) prices in the first quarter. According to data published by Valero Energy, the prices of ethanol RINs fell 67% YoY to an average of 19.7 cents per gallon in the first quarter. Biodiesel RIN prices have fallen 36% YoY to 50.5 cents per gallon in the first quarter. The lower prices could mean savings for Valero Energy. The company has been bearing the brunt of higher RIN prices.

Peers’ mixed indicators

HollyFrontier’s (HFC) refining index values also fell year-over-year in its main operating regions, Midcon and Rockies, in the first quarter. However, Marathon Petroleum’s (MPC) leading refining margin indicator, the blended crack, rose YoY in the first quarter.