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Will Valero’s Refining Margin Slump in Q2?

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Valero’s refining crack indicators

Valero Energy’s (VLO) refining crack indicators in the current second quarter point toward its likely refining margin.

Valero announces crack indicators for each of the regions in which its refineries operate. These areas are 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 fallen YoY (year-over-year) in two of its four operating regions in the current quarter. The USGC crack indicator has dropped the most significantly in the second quarter, by $2.3 per barrel YoY to $13.8 per barrel so far. The region refined 58% of the company’s crude throughput in the first quarter of 2019. Similarly, the North Atlantic, which accounted for 17% of Valero’s throughput in the first quarter, saw a $1.0-per-barrel YoY fall in its crack indicator in the second quarter.

Thus, the two main regions, which accounted for 75% of Valero’s throughput in the first quarter, have seen lower crack indicators in the second quarter, which could affect the company’s earnings. This impact will be partly offset by higher cracks in the Midcontinent and USWC regions.

Overall, in the second quarter so far, refiners are facing mixed refining conditions. While the benchmark USGC WTI 3-2-1 crack has risen YoY in the current quarter, oil spreads such as the Cushing-Midland and the WTI-WCS have narrowed. Further, Marathon Petroleum’s (MPC) blended crack has widened, but both differentials have narrowed so far in the quarter.

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