Refining margins in the second quarter
Refining margins primarily affect refining earnings. Leading US refiners publish refining margin indicators periodically to show how these margins could currently be trending. An analysis of these indicators could hint at the possible direction of companies’ refining margins and earnings.
Marathon Petroleum (MPC), Valero Energy (VLO), and HollyFrontier (HFC) publish refining or earnings indicators regularly. While HollyFrontier publishes refining index data, Marathon Petroleum and Valero publish blended cracks, spreads, and regional crack indicators.
Let’s analyze the trend in the industry benchmark crack, the USGC (US Gulf Coast) WTI 3-2-1 crack.
USGC WTI 3-2-1 crack in the second quarter
The USGC WTI 3-2-1 crack shows how much refiners earn when they process three barrels of WTI to produce two barrels of gasoline plus one barrel of distillate. This crack is an essential indicator for refiners with capacities in the USGC.
Phillips 66 (PSX) refined 36% of its total throughput in the USGC in the first quarter of 2019. A review of the USGC WTI 3-2-1 crack trend could show how the crack might affect PSX’s refining margin in the second quarter.
Amid volatility, the USGC WTI 3-2-1 crack has fallen 6% since April 1, 2019, to $19 per barrel at the start of the current quarter. However, on an average quarterly basis, the crack is still higher. The USGC WTI 3-2-1 crack is ~10% higher YoY at $20 per barrel so far in the second quarter, which could boost the margins of refiners in the area, such as PSX.