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Will HollyFrontier’s Refining Margin Rise in Q2?

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Jun. 7 2019, Updated 10:47 a.m. ET

HollyFrontier’s refining index

HollyFrontier (HFC) earns most of its income from its refining segment. Refining margins are the main determinant of the company’s refining earnings.

HollyFrontier’s refining index values are benchmark crack indicators in the areas where the company operates. HollyFrontier publishes the index values for three regions—Midcontinent, Rockies, and Southwest.

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Index values in the second quarter

In the second quarter, the index values have risen YoY (year-over-year) across HollyFrontier’s Midcon, Rockies, and Southwest operating regions.

HollyFrontier’s Midcon index value has risen by $2.9 per barrel YoY to $21.1 per barrel sequentially in the second quarter. The rise means the industry crack in the Midcon has increased in the second quarter. Similarly, the index value in the Southwest has risen from $30.2 per barrel in the second quarter of 2018 to $33.0 per barrel in the second quarter. The Rockies’ value has risen by $3.8 per barrel YoY to $32.4 per barrel in the second quarter, which points to a higher industry crack in the Rockies.

HollyFrontier’s largest operating region is the Midcon. The region holds the company’s El Dorado and Tulsa refineries. The Midcon accounts for 53% of the company’s refining throughput. The Rockies and Southwest process 20% and 27% of the throughput, respectively.

HollyFrontier’s refining margin will likely be impacted the most by the Midcon and Southwest regions, which could have higher cracks in the second quarter. Overall, the regional index values suggest that HollyFrontier’s refining margin could rise YoY in the second quarter based on the recovering regional cracks.

Peers’ refining margin indicators

The US Gulf Coast WTI 3-2-1, the benchmark, which impacts refiners like Phillips 66 (PSX) with large capacities in the region, has risen 11% YoY in the second quarter. Marathon Petroleum’s (MPC) blended crack, the key refining margin indicator, has increased YoY in the second quarter. However, Valero Energy’s (VLO) regional crack indicators have fallen in two of its main operating regions.

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