In This Article:
Key Takeaways
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Crack spreads are the price difference between a barrel of crude oil and the products refined from the barrel.
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Crack spreads may help PSX, MPC, XOM stocks as refining operations stand to benefit from this trend.
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Data from the U.S. Energy Information Administration (“EIA”) indicates that U.S. gasoline inventories have unexpectedly dropped to their lowest levels in two years, driven by robust demand and tighter fuel supplies. EIA reports reflect a 6% increase in gasoline demand during the week ending Nov. 8, justifying the strong fuel demand and supporting higher refining margins. With crack spreads anticipated to remain favorable, Phillips 66 PSX, Marathon Petroleum Corporation MPC and Exxon Mobil Corporation XOM are positioned to benefit significantly.
Crack Spreads Expected to Rise: Key Drivers
The November 2024 short-term Energy outlook from the EIA forecasts a moderate increase in crack spreads, signaling higher refining margins for products like gasoline and diesel. This projection is driven by several critical factors:
Shrinking Refinery Capacity
Planned closures of major U.S. refineries, including the LyondellBasell Houston facility (263,800 barrels per day) in early 2025 and the Phillips 66 refinery near Los Angeles later that year, will significantly reduce domestic refining capacity. This diminished capacity is expected to constrain fuel production, pushing refining margins upward.
Growing Fuel Demand
Rising U.S. demand for gasoline and diesel, fueled by increasing industrial activity and transportation requirements, is anticipated to outpace the reduced refinery output. This imbalance between supply and demand will further elevate crack spreads.
Global Refinery Additions Not Keeping Pace
Although new refinery capacity is being added globally, these expansions are unlikely to fully offset the impact of U.S. refinery closures. As a result, domestic refining margins are set to face continued upward pressure.
The combination of these domestic and global factors creates a market environment conducive to higher refining margins in the near term.
3 Energy Stocks to Keep an Eye on: PSX, MPC, XOM
Widening crack spread, which reflects wider refining margins, will benefit companies with refining operations like Phillips 66, Marathon Petroleum and Exxon Mobil Corporation. This is because it will be translated to greater profitability while processing raw crude oil into refined products like gasoline, diesel, and jet fuel. All the stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.