Refining markers published by bp and valero as well as the generic crack spreads calculated from futures prices are all for the gross margin obtained from turning crude into products. Crack spreads are a simple measure based on one or two products produced in a. Overview of bps refining segment and margins market realist. The october 2016 gasoline crack spread, the differential between the price of crude. Crack spread options provide refiners with a great tool to hedge or capture refining margins as they allow the refiner to hedge two independent risks with one trade.
Bp using refining marker margin and total using variable cost margins. Refining margin is the difference between total revenue from refined product sales and total costs of all crude oil and other refinery inputs. Asian jet fuel refining margins have now seen their biggest monthly fall in over 10 years. Bps downstream segment took a heavy beating last quarter as refiners cranked up output to benefit from higher margins, thereby creating an oversupply and hurting crack spreads. Update 1bps refining profit triples, weaker margins ahead.
A crack spread, or crack, is a term used in the energy markets to represent the differences between crude oil and wholesale petroleum product prices. Global refining margins help lift crude oil prices reuters. Bp profit falls 34% on lower refining margins marketwatch. Oil major bp shut down a 70,000 bpd crude unit at its gelsenkirchen. The refining marker margin rmm uses regional crack spreads to calculate the margin indicator and does not include estimates of fuel costs and other variable costs. Crack spread is a quickanddirty approximation of refining margin.
Besides, higher cracks and spreads should boost refining margins. Optimizing the hedging strategy for oil refining companies. Refining margins for verylowsulfur fuel oil vlsfo in the trading hub in and. Singapore cracking margins have already started to perk up. The other refiners, mobil australia, caltex australia and bp australia, have. European margins are also increasing ahead of planned outages.
The bp refining marker margin rmm uses regional crack spreads to. Bps income from its refining operations is primarily dependent on refining margins and crack spreads. The economics of petroleum refining canadian fuels association. Income from refining operations is primarily dependent on refining margins and crack spreads. The graph from bp shows that the refining industry has generally experienced strengthened refining margins in each of the. The 6,000barrel spill on one of the colonial pipelines on friday is to blame for the surging refining margins. Bp could benefit from recovering oil prices in 2020 market realist. A key driver of refiners margin is the differences in global supplydemand fundamentals. Optimizing the hedging strategy for oil refining companies 8 the currency risks and associated cash flow and financial reporting impacts are depicted below. Unknowns about the future growth rate of the world economy, the price of crude oil, government regulations, as well as the economics of alternative transportation fuels are causing many uncertainties for the industry. The oil major said that refining margins will remain under significant pressure in the third quarter. Key trends impacting global refining margins trefis. As refining margins improve, refiners gain the incentive to add additional capacity.
This is leading to high refining margins based on wide crack spreads, which refers to the profits from converting crude into gasoline and other petroleum products. The future of oil refining profit margins by brad vantassel in recent years, oil refining margins have been extremely volatile. Short interest in refinery shares is up by a quarter while upstream firms have seen covering. Am0555 a new proxy for coking margins forget the crack. Global oil prices have slumped by more than 20% since midjune on oversupply in the market and weakening demand growth, and bp like all oil majors.
Refining markers published by bp and valero as well as the generic crack spreads calculated from futures prices are all for the gross margin. Crack spread is a term used on the oil industry and futures trading for the differential between the price of crude oil and petroleum products extracted from it. Oil and gas this oil 101 refining module discusses refinery margins, the crack spread. The key reason behind the lackluster performance of oil and gas companies, including the likes of exxon mobil, bp plc. Bp and chevron cvx last year, was thinner refining margins. Those profits are often referred to as crack spreads, a rough measure of earnings based on the. T he key reason behind the lackluster performance of oil and gas companies, including the likes of exxon mobil xom, bp plc. Singapore medium sour hydrocracking refining margin is at a current level of 3. Oil 101 refining business drivers downstream oil and gas.
As oil output grows, bp keeps refining stable, expands retail. Northwestern european gasoline refining margins rose on friday but remained. Relative impact of factors on a refiners net margins source. The graph from bp shows that the refining industry has generally. After reporting its second quarter figures, bps stock opened up down more. The term crack comes from how a refinery makes money. In the refining industry and in financial markets, this is called the crack spread. Bp closely tracks refining margin market indicators in the us midwest, the us northwest. Conocophillips earnings less important than spinoff.
A new proxy for coking margins forget the crack spread the socalled 321 crack spread has been used for many years by refining industry analysts as a broadbased indicator of the economic incentive to convert crude oil into finished products. Oil bust endures for big oil as refining margins deteriorate. The refining marker margin rmm uses regional crack spreads to calculate the. These spreads are often used to estimate refining margins. Bp profit slides on weaker refining, oilproduction loss.
Refinery shares stumble as margins crack ihs markit. Europe gasolinenaphthacracks rise on refinery cuts, remain negative. Widening crack spread to shore up refiners margins the. Refining marker margins are simplified regional margin indicators based.
Unless you simply burn it, crude oil in its natural state is of no use to consumersit. Bp, one of the largest us refiners and petrochemical producers and fuel retailers, will a member of the american petroleum institute, the. Refinery shares stumble as margins crack refining shares were the winning energy trade during the recent market slump, but slipping margins have seen these stocks lose their hard earned gains while also attracting short sellers. The crack spread a measure of the profitability of the fuel for jet barge cargoes. Bp closely tracks refining margin market indicators such as the usmw us midwest, the usnwc us. Exports or imports the future of asian refining industry commentary 3.
Bp to quit main us refining lobby over carbon policy, energy news. In the downstream, the refining marker margin rmm rule of thumb reflects the sensitivity of the groups results to changes in refining margins. Oil giants start losing safety net as refining margins. Over the course of the past year, refining profit margins have been all over the map. Europe gasolinenaphthacracks rise on refinery cuts, remain. Refinery margins rally after colonial line breakdown. Singapore medium sour hydrocracking refining margin. The key reason behind the lackluster performance of oil and gas companies, including the likes of exxon mobil nyse. Following a weak q1 2019, global refining margins have recovered strongly in line with a rebound in gasoline cracks.
Margins shown are based on each companys methodology. Bp has sold some refining assets over about the past 10 years including in the uk to focus on those refining operations the company. However, variations could arise between the rmm and bps realised refining margins due, for example, to bps particular refinery configurations and crude slate and product mix. Higher crude price and better refining margins with crack spreads at historic highs isnt a recipe to get investors too excited about the earnings headlines from the oil majors. An introduction to crack spreads today in energy u. We will be drilling deeper into downstream oil and gas segments, starting with refining. Refinery shares stumble as margins crack 27 july 2016 refining shares were the winning energy trade during the recent market slump, but slipping margins have seen these stocks lose their hard earned gains while also attracting short sellers.
Hedging refining profit margins with crack spread options. Whats the outlook for bps downstream earnings in q4 2018. The average profitability contribution to net income divided by net investment in place or return on investment roi of u. We believe that the closure of bulwer refinery would help improve bps downstream margins by reducing the average per unit refining costs. Key trends impacting global refining margins nasdaq. Bp will benefit from the fact that refiners have started reducing their output, while demand for gasoline is set to increase going forward. Widening crack spread to shore up refiners margins stateowned crude oil refiners are expecting to improve their gross refining margins in the march quarter as the price spreads of jet fuel and diesel widen in the international overthecounter otc market. A game of margins over 80% of exxons q3 2019 revenue came from its downstream refining business, yet upstream exploration, drilling, completions, and production made up nearly 70% of. Trading conditions update investors home bp global. The spread approximates the profit margin that an oil refinery can expect to make by cracking the longchain hydrocarbons of crude oil into useful shorterchain petroleum products in the futures markets, the crack spread is a. In its thirdquarter earnings statement, bp also said it expected its oil and gas production and refining margins to be lower in q4 2014, having already seen its output and profits slide in q3. Bp cuts 2014 capex, sees lower q4 oil and gas output.
325 651 250 212 1304 1048 442 149 392 1510 1244 151 210 1529 291 1000 1388 725 463 705 836 1094 47 406 76 756 734 344 142 1049 653 387 421 268 211 224 500