What Does Tesoro’s Refining Index Tell Us?
Is Tesoro Evolving into an Integrated Downstream Player?
Tesoro’s refining index
In the previous part of the series, we looked at Tesoro’s (TSO) refining margin trend through 1Q16. Now let’s analyze Tesoro’s refining index, which points to the company’s likely refining margin direction for 2Q16.
Tesoro’s refining index in 2Q16
In 2Q16 to date, Tesoro’s refining index values have risen compared to 1Q16 but have fallen compared to 2Q15. These values are regional crack indicators in the areas where TSO operates.
The index value in California stands at $15.40 per barrel in 2Q16 compared to $13.60 per barrel in 1Q16. Similarly, Pacific Northwest and Midcontinent index values stood at $9.60 and $14.10 per barrel, respectively, in 2Q16 compared to $8.30 and $10.80 per barrel in 1Q16, respectively. This points to the likely rise in TSO’s GRM (gross refining margin) in 2Q16 compared to 1Q16. But on a yearly basis, all the index values have declined.
HollyFrontier’s (HFC) refining index also points to the likely refining margin for the company. Marathon Petroleum (MPC) and Valero Energy (VLO) publish refining margin indicators hinting at the likely margin level for the quarter. For exposure to high dividend stocks, you can consider the iShares Core High Dividend ETF (HDV). The ETF has ~21% exposure to the energy sector stocks.
Crude oil differentials in 2Q16
Tesoro (TSO) closely tracks ANS (Alaskan North Slope) West Coast 3-2-1 and WTI (West Texas Intermediate) Midcontinent 3-2-1 crack spreads. Both the crack spreads have risen in 2Q16 compared to 1Q16. The West Coast 3-2-1 crack spread has risen from $15.90 per barrel in 1Q16 to $18.90 per barrel in 2Q16. Similarly, the Midcontinent crack spread has risen from $10.50 per barrel in 1Q16 to $12.40 per barrel in 2Q16. The higher crack spreads imply the likely strength in Tesoro’s (TSO) 2Q16 GRM on a sequential basis. But on a yearly basis, both crack spreads have declined.
In the next part, we’ll look at Tesoro’s growth plans, which are focused on a diversified portfolio.
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