US refiners have begun the third quarter on a strong footing, with refining margins improving across most companies as low fuel inventories and renewed tensions between the US and Iran support market conditions, TPH Energy Research analyst Matthew Blair said in a Tuesday note.
Blair said company-specific refining indicators are off to a "fantastic start" about halfway through the first month of the quarter, with most refiners benefiting from stronger product cracks and favorable crude market dynamics.
Among the large-cap refiners, Valero Energy (VLO) is showing the biggest improvement over the quarter, with TPH estimating refining margins have increased by about $9.15 per barrel.
Blair attributed the gains to the company's significant exposure to the North Atlantic and US Gulf Coast, where refining economics have strengthened the most since the Q2.
Valero is also benefiting from wider Gulf Coast crude differentials, including ASCI and Maya grades.
Phillips 66 (PSX) is estimated to be up about $6.70/bbl over the quarter, supported by similar regional exposure. However, Blair said the company's performance has been somewhat constrained by higher crude prices and weaker Gulf Coast product trends.
Marathon Petroleum (MPC) is estimated to have improved by roughly $5.95/bbl from the prior quarter. While product margins in the Chicago region have not strengthened as much as elsewhere, Blair said that has been partially offset by a more favorable structure in the WTI crude market.
Among small- and mid-cap refiners, Delek US Holdings (DK) stands out as the strongest performer, with TPH estimating a quarter-over-quarter improvement of about $13.60/bbl.
Blair cited the company's Gulf Coast product exposure, wider Midland crude differentials and improved WTI market structure as key drivers.
CVR Energy (CVI) is also seeing a substantial improvement, with estimated margins up about $9.85/bbl before accounting for renewable volume obligation costs, or about $7.34/bbl after those costs.
HF Sinclair (DINO) is estimated to be up about $2.80/bbl, benefiting from stronger Group 3 gasoline cracks, although Blair noted that the company's exposure to the Rockies and Southwest has moderated from exceptionally strong Q2 levels.
Par Pacific Holdings (PARR) is the only refiner in TPH's coverage expected to post a quarter-over-quarter decline, with estimated margins down about $2/bbl.
Blair attributed the weakness primarily to Singapore refining margins retreating from record Q2 levels, along with TPH's expectation of more challenging Hawaiian crude differentials during Q3.
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