Refining stocks compared to SPY
In the second quarter of 2019, Valero Energy (VLO) rose 0.9%, while Marathon Petroleum (MPC), Phillips 66 (PSX), and HollyFrontier (HFC) fell 6.6%, 1.7%, and 6.1%, respectively. The SPDR S&P 500 ETF (SPY), the broader equity market indicator, rose 3.7% in the second quarter. Thus, in the quarter, refining stocks underperformed SPY.
Refining stocks put up mixed performances
In the second quarter, refiners posted weak first-quarter earnings. In the first quarter, HollyFrontier, Valero Energy, and Phillips 66 surpassed their earnings estimates, but Marathon Petroleum (MPC) missed its estimates. For more on these companies’ earnings analyses, read MPC, VLO, HFC, and PSX: Beats and Misses in Q1.
The refining environment put up mixed cues in the second quarter. While industry cracks rose, oil spreads narrowed YoY (year-over-year) in the period.
The US Gulf Coast WTI 3-2-1, the benchmark crack, rose 9.1% YoY to $19.7 per barrel in the second quarter. However, the Canadian differential, the WTI–Western Canadian Select spread, fell 30.4% YoY to $12.4 per barrel in the second quarter driven by supply constraints. The WTI Cushing–WTI Midland spread fell 71.2% YoY to $2.3 per barrel in the quarter. The fall in the spread was driven by new pipelines, which started sooner than expected in the region, easing infrastructure issues and allowing crude to be transported out of the Permian region.
Further, the refining margin indicators of Marathon Petroleum, Valero, and HollyFrontier showed mixed trends in the second quarter of 2019. While Marathon Petroleum’s blended crack rose until May’s end, its sour and sweet differentials narrowed. Valero’s indicators were lower in its main operating regions, the Gulf Coast and the North Atlantic, until May’s end. Holly Frontier’s refining index values rose in all three of its operating areas in the same period.
Thus, these diverse refining conditions have led to mixed performances in these refining stocks. For more on the refining environment in the quarter, read Has the US Gulf Coast WTI 3-2-1 Crack Surged in Q2?
In the second quarter of 2019, mixed cues from first-quarter earnings and the refining environment led to refining companies’ dull performances.