Weaker gasoline, higher RINs drag Q3 US refining margins lower
New York (Platts)--7Oct2013/219 pm EDT/1819 GMT
Weaker gasoline prices and higher RINs prices combined with stronger crude prices to pull refining US margins for most crudes lower during the third quarter, Platts data showed Monday.
Platts margins reflect the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.
In the Midwest, the West Texas Intermediate cracking margin averaged $11.32/barrel during the third quarter, down from $24.69/b in Q2 2013 and $35.75/b in Q3 2012. In the US Gulf Coast region, the cracking margin for Light Louisiana Sweet averaged $10.30/b during the third quarter. While that was up 2 cents/b from the second quarter, that was down $7.79/b year on year, Platts data showed.
In the US Atlantic Coast market, the cracking margin for Canadian Hibernia crude averaged $3.40/b during the third quarter, up 18 cents/b from the second quarter, but down $7.74/b from Q3 2012.
The lower margins have led some analysts to cut their refiner earnings estimates for the third quarter. Oppenheimer analysts Fadel Gheit and Robert Du Boff Friday lowered their ratings for several refining stocks, including Valero, Tesoro, and Holly Frontier, "from Outperform to Perform on a deteriorating earnings outlook."
"We are cutting our 3Q13 earnings estimates for the group to reflect weaker market crack spreads, notably for gasoline, a narrowing Brent-WTI spread, and lower sequential margin capture rates," the analysts said in a report. "Margin capture should be down for a variety of reasons, including the cost of RINs..."
Wells Fargo analysts were also bearish. "Weaker crack spreads, particularly gasoline cracks, will continue to pressure refining margins/profitability and thus stock performance, in our opinion. Based on continued declines, refiners are poised for a much weaker Q3 performance, in our opinion,"
A little more than rear view mirrors going on here. From NTI board the spreads are really widening and have been for the past few weeks. Who knows but longer term as the oil keeps moving forward in production, it looks to me like the pressure will always be for increasing the magnitude of the spread.
take a look at the Platts report "New Crudes New Markets" and you will see that takeaway capacity is growing rapidly in the Bakken and also in Alberta. As an example, WCS generally traded 15 through before the recent glut. Now with rails to the coasts and the reversal of the Line 9 to Montreal planned, there are going to be more markets - and who knows if Keystone every gets approved. Point is that the big margins in the Bakken are disappearing (10-12 thru brent is a stop) and WCS will soon see the same. That means gross margins per barrel which were as higher at $14+/bbl will decline back to their pre-glut levels of $9-10....punch that into a DCF model and you will see that we will be lucky to cover distributions in 2015. I see at least another 15mn shares needed to be issued over the next 12 months to finish the projects that will bring home the EBITDA (hopefully)...