How Will MPC’s Refining Segment’s Earnings Shape Up in 4Q15?
Marathon Petroleum's 4Q15 Estimates: Did It Go the Distance?
MPC’s Refining & Marketing segment
Marathon Petroleum (MPC) has three segments: Refining & Marketing, Speedway, and Pipeline Transportation. The Refining & Marketing segment is the largest contributor to MPC’s operating income.
Between 2Q15 and 3Q15, the income from MPC’s Refining & Marketing segment grew. This was due to a rise in the gross refining margin by $2.40 per barrel over 2Q15 to $17.30 per barrel in 3Q15. During the quarter, the blended LLS (Light Louisiana Sweet) crack spread and sweet-sour differential rose by $1.90 per barrel and $1 per barrel, respectively, over 2Q15. However, this was partially offset by the $1.30 per barrel fall in the LLS-WTI (West Texas Intermediate) spread.
MPC’s peers also witnessed a rise in their GRMs (gross refining margins). Valero Energy (VLO), Tesoro (TSO), and Phillips 66 (PSX) saw their GRMs widen by $2.60, $5.60, and $3.10 per barrel over 3Q14 to $14.40, $20.50, and $14 per barrel in 3Q15. The PowerShares Dynamic Large Cap Value ETF (PWV) has ~10% exposure to energy sector stocks, including MPC, VLO, and PSX.
MPC’s refining segment outlook for 4Q15
According to MPC, a dollar per barrel change in the blended LLS crack spread affects its annual net income by $450 million. Similarly, a dollar per barrel change in the sweet-sour or LLS-WTI spread affects its income by $220 million and $90 million, respectively.
In 4Q15, according to MPC, the blended LLS crack spread has declined by $5.50 per barrel from 3Q15 to $6.70 per barrel. The LLS-WTI spread has narrowed by $2.40 per barrel from 3Q15 to $1.30 per barrel in 4Q15. The reduction in the blended LLS and LLS-WTI crack spreads could likely impact MPC’s refining segment earnings negatively. However, some respite in the form of the sweet-sour differential widening is likely in 4Q15. The differential has risen by $0.50 per barrel from 3Q15 to $6.40 per barrel in 4Q15.
Browse this series on Market Realist:
