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Have Valero’s Crack Indicators Surged in Q2?

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Valero’s refining crack indicators

Valero Energy (VLO) makes most of its earnings from its Refining segment. Refining margins are the primary determinant of the company’s refining earnings. If we review its crack indicators, we could get a better sense of the direction of its refining margin in the current quarter.

Valero announces regional crack indicators for its four operating regions: the USGC (US Gulf Coast), the US Midcontinent, the USWC (US West Coast), and the North Atlantic.

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How are Valero’s refining crack indicators trending?

Valero’s crack indicators have risen YoY (year-over-year) in three of its four operating regions in the second quarter. Valero’s crack indicator in the USWC has risen $10.3 per barrel YoY to $28.8 per barrel in the second quarter to date. Similarly, the Midcontinent crack indicator has surged $2.1 per barrel YoY to $20.3 per barrel in the second quarter. The North Atlantic crack has risen marginally in the quarter.

In the first quarter of 2019, the USWC, Midcontinent, and North Atlantic regions processed 9%, 15%, and 17% of the company’s total throughput, respectively. Thus, these regions accounted for 42% of the company’s total throughput in the quarter.

However, the USGC, the largest region for the company, which processed 58% of its throughput in the first quarter, has seen a fall in its crack indicator. The USGC crack indicator has fallen $1.5 per barrel YoY to $14.6 per barrel so far in the second quarter.

Thus, Valero’s refining margin will likely be affected by the USGC’s lower cracks partly offset by higher cracks in other regions.

Peers’ refining crack indicators

Valero’s peers Marathon Petroleum’s (MPC) and HollyFrontier’s (HFC) refining margin indicators have improved in the second quarter. HFC’s refining index has risen YoY in its primary operating regions of the Midcontinent and Southwest in the second quarter so far. These regions accounted for 80% of HollyFrontier’s total throughput in the first quarter. MPC’s primary indicator, the blended crack, has risen 51% YoY to $15.5 per barrel in the second quarter so far.

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