Marathon Petroleum’s refining earnings

Before proceeding with Marathon Petroleum’s (MPC) refining earnings outlook for the first quarter, we’ll review Marathon Petroleum’s earnings in the fourth quarter of 2018.

Marathon Petroleum’s operating income has risen 72% since the fourth quarter of 2017 to $2.0 billion in the fourth quarter of 2018. The increased operating income was led by a rise in R&M (refining and rarketing), retail, and midstream earnings.

Marathon Petroleum’s Refining Earnings in Q1

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The R&M segment’s operating earnings rose from $0.7 billion in the fourth quarter of 2017 to $0.9 billion in the fourth quarter of 2018. The operating earnings rose due to higher throughput led by the integration of Andeavor’s refining capacities. Marathon Petroleum’s throughputs rose from 2.0 MMbpd (million barrels per day) in the fourth quarter of 2017 to 3.1 MMbpd in the fourth quarter of 2018. Higher oil spreads supported the refining earnings. Marathon Petroleum’s gross refining and marketing margin increased by $2.0 per barrel since the fourth quarter of 2017 to $15.1 per barrel in the fourth quarter of 2018.

Valero Energy’s (VLO) gross refining margin rose from $8.8 per barrel in the fourth quarter of 2017 to $11.0 per barrel in the fourth quarter of 2018. Phillips 66’s (PSX) worldwide refining margin rose by $7.6 per barrel or 84% YoY to $16.5 per barrel in the fourth quarter of 2018.

Indicators in the first quarter

Marathon Petroleum’s refining margin and earnings are impacted by the blended crack, the sour differential, and the sweet differential. According to Marathon Petroleum, a dollar-per-barrel rise in the blended crack expands its annual net income by $900 million. Also, a dollar-per-barrel shift in the sour differential and the sweet differential alters its yearly net income by $450 million and $370 million, respectively.

These refining earnings indicators have put up a mixed trend in the first quarter. In the first quarter, the blended crack rose marginally by $0.6 per barrel YoY to $9.3 per barrel. Also, the prompt sweet differential rose by $2.7 per barrel YoY in the first quarter. The company’s refining earnings could increase in the first quarter due to the larger blended crack and sweet differential partly offset by the narrower sour differential.

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