18 Sep

Volatile Refining Stocks, Cracks, and SPY in Q3

WRITTEN BY Maitali Ramkumar

Refining stocks have put up mixed performance numbers in the third quarter. Valero Energy (VLO) and Marathon Petroleum (MPC) have fallen 1.5% and 4.4%, respectively. However, Phillips 66 (PSX) and HollyFrontier (HFC) have risen 9.3% and 14.6%, respectively. Such diverse performance numbers are due to mixed refining conditions, partly offset by volatile markets.

In the quarter, the S&P 500 Index (SPY) has risen 2.7%. Although the market has risen, it has fluctuated due to the US-China trade war, the Fed’s rate decisions, recession jitters, and the recent drone attack on two crude oil installations in Saudi Arabia. With ever-changing macro conditions and geopolitical scenarios, the equity market has been on a roller-coaster ride.

Volatile Refining Stocks, Cracks, and SPY in Q3

Refining stocks affected by mixed refining conditions

American refiners’ margin indicators have shown diverse data in the third quarter. While Valero and MPC’s data is weak, HollyFrontier’s data is mixed.

Valero’s refining crack indicators have fallen in two of its four operating regions. Valero’s Gulf Coast and Midcon indicators have fallen 1.2% YoY and 6.9% YoY, respectively, in the third quarter. Valero’s North Atlantic and West Coast indicators have risen 2.3% YoY and 8.9% YoY, respectively.

These indicators point toward the company’s likely refining crack in the quarter. Valero’s weaker crack indicators in its main Gulf Coast and Midcon areas can result in a lower refining margin and profit for the refiner in the third quarter.

Similarly, Marathon Petroleum’s refining earnings indicators have fallen. MPC’s blended crack, sweet differential, and sour differential have fallen 3.3%, 58.7%, and 70.6%, respectively. This is not good news for the company, as it points toward possibly lower refining earnings in the third quarter. No surprise, MPC and VLO’s shares have fallen in the quarter.

Further, HollyFrontier’s index values have put up a mixed trend. While its index values at Midcon and the Rockies have fallen 7.9% and 13.5% YoY, respectively, its index values have risen 20.4% YoY in Southwest.

The benchmark refining crack, the US Gulf Coast WTI 3-2-1, has fallen 15.4% from July 1 to the current level of $16.70 per barrel. If we analyze the average quarterly trend, the crack has risen year-over-year—a good sign. USGC WTI 3-2-1 crack has increased 7.2% YoY to $18.60 per barrel in the current quarter.

Refiners’ latest earnings

The latest earnings also impacted the refining stocks in the current quarter. All four refining firms surpassed Wall Street analysts’ estimates in the second quarter. However, most refining companies saw weaker refining margins in the quarter.

Marathon Petroleum’s gross refining and marketing margin fell $0.20 per barrel YoY to $15.20 per barrel in the second quarter. However, its operating income rose 19% YoY to $2.0 billion in the quarter.

Phillips 66’s adjusted profits rose 7% YoY to $1.5 billion. The company’s refining margin fell by $0.90 per barrel YoY to $11.40 per barrel in the second quarter.

Further, Valero’s earnings fell 28% YoY to $612 million. The company’s refining margin declined 14% YoY to $9.60 per barrel in the quarter.

However, HollyFrontier’s refining margin rose from $16.60 per barrel in Q2 2018 to $19.60 per barrel in Q2 2019. The higher margins raised its refining earnings by 44% YoY. Better refining margins and earnings positively impacted the stock. To learn more, please read HFC Stock Continues Climb Past 44% YoY Rise.

Overall

Refining stocks have put up mixed performance numbers due to uneven cues from the refining environment. While a few indicators have improved, others have lagged. Refining stocks were also impacted by their second-quarter earnings.

Also, the latest ongoing discussions between refiners and President Donald Trump has been impacting the refining stocks. To learn more, please read Big Biofuels Issue: Trump Meets with Refiners, Senators.

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