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MPC, VLO, PSX, HFC: Will Refiners’ Earnings Fall in Q3?

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Refiners have posted mixed results in the third quarter. Mixed refining margin indicators, a volatile equity market, and macro concerns have affected these stocks. Now, refiners are gearing up for their third-quarter earnings season.

Let’s understand which company could post a better set of numbers by ranking their earnings growth estimates for Q3. We’ll look at the four leading refiners—Marathon Petroleum (MPC), Valero Energy (VLO), Phillips 66 (PSX), and HollyFrontier (HFC).

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Third-quarter earnings estimate of refiners

Wall Street analysts expect refiners’ earnings to fall in the third quarter. Analysts expect Marathon Petroleum’s EPS to fall the least—9% YoY in Q3 2019. In second place, Valero’s EPS could fall 20% YoY.

Analysts expect Phillips 66 and HollyFrontier’s EPS to fall sharply by 22% YoY and 32% YoY, respectively. Analysts forecast refining companies’ earnings to fall due to mixed indicators, reflecting flat or weaker refining margins.

In the second quarter, Marathon Petroleum’s EPS fell 24% YoY and Phillips 66’s EPS rose 8% YoY. Valero Energy’s EPS fell 30% YoY in Q2, and HollyFrontier’s EPS rose 50% YoY in the quarter.

Refining conditions in Q3

Wall Street analysts expect refining earnings to be almost flat or fall year-over-year in Q3 2019. Narrower oil spreads, which were partially offset by wider refining cracks, could affect refiners’ earnings.

The industry crack, the US Gulf Coast WTI 3-2-1, rose 14% YoY in the third quarter. However, oil spreads declined. While the Canadian spread fell 54% YoY, the Midland spread collapsed by 98% YoY.

Similarly, Marathon Petroleum’s refining margin indicators have put up mixed cues. The company’s sweet differential and sour differential fell by 60% YoY and 69% YoY, respectively, but its blended crack remained flat year-over-year.

Also, Valero’s refining crack indicators have remained flat in its main operating regions of the US Gulf Coast and North Atlantic. In the Midcon, Valero’s crack indicators have fallen by 5% YoY, but they have risen by 22% YoY on the West Coast.

Plus, HollyFrontier’s refining index values put on a mixed show. While HFC’s index values fell by 9% YoY in the Midcon and 7% YoY in the Rockies, it rose by 19% YoY in the Southwest.

In the third quarter, RINs (Renewable Identification Numbers) prices have also shown a diverse trend. While the prices of ethanol RINs fell 8% YoY, the prices of biodiesel RINs rose 10% YoY. To learn more about RINs, please read Big Biofuels Issue: Trump Meets with Refiners, Senators.

Second-quarter earnings

Refining sector companies posted mixed second-quarter earnings. Variations in refining margins affected refiners’ profits in the quarter. While Marathon Petroleum, Phillips 66, and Valero’s refining margins fell in the second quarter, HollyFrontier’s margin rose.

Marathon Petroleum’s gross refining and marketing margin fell by $0.20 per barrel YoY to $15.20 per barrel in the second quarter. Plus, Phillips 66’s refining margin fell by $0.90 per barrel YoY to $11.40 per barrel in the second quarter.

Notably, Valero’s refining margin declined by 14% YoY to $9.60 per barrel in the quarter. However, HFC’s refining margin rose by $3.00 per barrel YoY to $19.60 per barrel in Q2 2019.

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