BP’s downstream earnings
In this article, we’ll review BP’s (BP) downstream earnings outlook for Q2 2019. BP’s downstream earnings are dependent on the refining margin, which is influenced by regional refining cracks.
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BP calculates RMM (or 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 second quarter
BP’s RMM in the second quarter so far has risen year-over-year. BP’s RMM has risen from $14.9 per barrel in Q2 2018 to $16.7 per barrel in Q2 2019 due to a rise in regional refining cracks in the US partly offset by a fall in cracks in the Mediterranean region and Australia.
So far, the US North West crack has risen by 33% YoY to $28.2 per barrel in Q2 2019. Also, the US Midwest crack has surged by 22% YoY to $22.4 per barrel. This rise could impact the company’s refining margin in the US, which refined around 42% of the company’s total crude oil throughput in the first quarter.
The European region refined another 44% of BP’s throughput. So far, the Northwest Europe crack has stayed flat year-over-year. However, refining cracks in the Mediterranean region and Australia also have declined by 14% YoY and 6% YoY, respectively, in the second quarter.
Thus, the rise in the crack in BP’s primary operating areas and an increase in RMM imply year-over-year higher refining margin for the company in the second quarter. This could boost the company’s downstream earnings for the quarter.