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Marathon Petroleum Corporation (MPC)

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  • D
    Dennis
    $VLO conversation
    Starting out as another great November Monday for refiners
    #MPC
  • D
    Dennis
    $VLO conversation
    (Bloomberg) -- PBF Energy Inc.’s Paulsboro refinery in New Jersey has became the latest oil processing facility to fall victim to a Covid-driven collapse in fuel demand, announcing plans to idle operations for the foreseeable future.
    The company plans to lay off 250 employees at the 160,000-barrel-a-day plant and halt fuel production as a result of low demand, according to a letter to employees seen by Bloomberg. Paulsboro will continue its lubricant and asphalt operations, the letter said.
    #mpc #psx
  • D
    Dennis
    $VLO conversation
    The following are the regional crack spread indicators ($/barrel) provided by Valero for
    Q3-20, Q2-20, and Q3-19, respectively:
    Gulf Coast_______ 7.67___7.26____15.80
    Mid Con_________ 7.98___8.17____17.33
    No Atlantic______7.58____8.28___13.25
    West Coast_____11.74 ___9.67 ___19.05
    Ethanol ($/gal)____ .43____ .20_____ .37

    Cost of RINs (cents per gal)
    Ethanol_______46.6____39.9____19.0
    Biodiesel______67.0___54.0_____45.7

    MPC
    These are the regional crack spread indicators ($/brl) provided by Marathon Petroleum for
    Q3-20, Q2-20, and Q3-19, respectively:

    Mid Con ______5.55____4.72____15.26
    Gulf Coast_____3.28____2.75____10.05
    West Coast ____9.21____7.44____17.77
    Blended________5. 57____4.62___13.88

    Please note.
    Calculation of crack spread indicators is not comparable across the 2 companies.
    These are indicative, not actual. They will not reflect lower prices from alternative crude sources
    This is presented to be consistent with prior quarters. However, before Covid, throughput volume was relatively consistent, That is no longer the case.
    #MPC
  • D
    Dennis
    $VLO conversation
    The death of the US refining business has been greatly exaggerated. This is admittedly the worst refining environment I have seen. I believe conditions will improve but timing is difficult to predict

    US gasoline and diesel sales volumes will return when Covid appears controlled. I don’t know how long that will take nor whether it will take an approved vaccine. The similar Spanish Flu of 1918 just faded away after 2 years. We should do better in 2020.
    A portion of the US workforce will continue to work at home while another portion will prefer commuting in the relative safety of automobiles. There has been some exodus from urban to suburban areas. I think this will also encourage auto usage.

    Crack spreads have been unpredictable. I think that, despite OPEC efforts, world crude supply will be overabundant while prices stay low. The key will be whether US refiners can control their own fuel production, keeping inventories down and prices up. If some small refineries don’t survive Covid, large refiners may benefit.

    Electric vehicles will grow as a percentage of US cars and trucks but, in my opinion, not as quickly as proponents expect. High cost and lack of charging stations will limit growth. Assuming that Democrats control the government next year, likely efforts to encourage adoption of EVs with subsidies and tax incentives will encounter a few obstacles
    -- We will coming out of recession with massive deficits. Funds to build EV infrastructure will be limited
    -- The existing electric grid is limited. Whether it can handle heavy volume of auto charging and air conditioning every night is questionable. It is also questionable whether windmills and solar panels can ever provide enough electricity. Nuclear power may be the only solution but that brings its own issues.
    -- Other points worth noting are that the current EV base is very small, so reported percentage growth may be misleading. EV adoption will always be influenced by gasoline prices that are low and unlikely to increase significantly. At some point, there will be questions about whether sitting on a giant battery for a long time is healthy. Finally, government efforts to encourage EV adoption may be seen as excessively benefiting one company

    There are legitimate concerns that a Democratic sweep will result in US refiners being hurt by increased taxes, RIN obligations, and EPA regulations. This will likely hurt refiner profits but the extent is impossible to estimate. I think that this, along with all the risks and uncertainties mentioned above, is already built into current refiner stock prices. Of course, this is what I choose to believe. I could be wrong.

    #MPC #PSX
  • r
    ron
    $EGO conversation
    Largest CALL OI increases
    $CSCO $AAPL $MPC $VALE $EGO
  • D
    Dennis
    $VLO conversation
    Barrons -- Americans Are Getting Back on the Road. 3 Stocks to Buy.-- By Andrew Bary, May 29, 2020

    Driving is rebounding as the economy reopens and Americans take to their cars, viewing them as being more protected spaces than airplanes, trains, or other mass transit. That looks bullish for Marathon Petroleum (ticker: MPC) and other big refining stocks, such as Valero Energy (VLO) and Phillips 66 (PSX), that have bounced off their March lows, but are still down an average of 30% this year.

    Marathon, whose shares trade around $35, is a play on rising gasoline demand. It is also a sum-of-the-parts story, with the No. 1 independent U.S. refiner by capacity planning to spin off its valuable Speedway division by year end.
    Speedway is the No. 2 company-owned gasoline and convenience-store group in the country, behind only Alimentation Couche-Tard of Canada (ATD.B.Canada). Thanks to high-margin impulse purchases by drivers, convenience stores command higher valuations than supermarket chains. Marathon could be worth more than $50 a share in a breakup.

    Phillips 66 and Valero are favored by J.P. Morgan analyst Phil Gresh. Valero is a well-managed pure-play refiner with a strong balance sheet. Phillips 66 is the industry leader with the safest dividend, and it offers a “best in class alternative to the oil majors,” Gresh recently wrote. Phillips 66 has refining, pipeline, chemical, and retail businesses—everything except energy production. Marathon yields 6.6%; Valero, 5.8%; and Phillips 66, 4.6%.

    Gasoline demand was down around 40%, year over year, in April, but the comparison improved to an estimated 20% drop in May, according to Gresh.
    Investors are focused on gasoline usage during the remainder of 2020. Mizuho analyst Paul Sankey has predicted “record” demand for the fuel this summer, as Americans vacation domestically, rather than taking trips abroad.
    Gresh is not quite as optimistic, forecasting a 5% drop in demand in the third and fourth quarters. He wrote last week that he saw “negative factors like the recession (unemployment) and telecommuting more than offsetting the positive factors like the shift from air/mass transit to vehicles and the possibility of more staycations this summer.”

    Gasoline prices, now averaging about $2 a gallon for regular nationally, aren’t expected to rise much this summer, based on futures quotes, even with a strong driving season.
    The outlook for refining is admittedly not rosy at the moment. Jet fuel demand is weak, and utilization rates are historically low. The entire U.S. industry—with the exception of Phillips 66—is expected to lose money in 2020, but investors are looking out to 2021 and 2022, as they are with other hard-hit industries.
    And Marathon may be the cheapest stock in the group.

    At its current share price, investors are effectively paying little or nothing for the company’s refining business when factoring in the potential $20 billion value of Speedway and the $13 billion market value of Marathon’s majority stake in MPLX (MPLX), one of the country’s largest pipeline operators.
    Credit Suisse’s Manav Gupta wrote this month that he is pleased that Michael Hennigan, who became Marathon’s chief executive in March, is focused on “strict cost control, capital discipline,” and operational improvement. Hennigan’s predecessor, Gary Heminger, was more of an empire builder.
    The activist investor Elliott Management took aim at Marathon and Heminger last September, arguing that the stock, then around $55, was “severely undervalued” and worth at least $89 a share on a sum-of-the-parts basis.
    Elliott’s broadside came when the refining business was much stronger than it is now, but if the stock merely gets back to $55, it would be about a 55% gain.
    #MPC #PSX
  • D
    Dennis
    $VLO conversation
    In my opinion, yesterday’s significant decline in refiner stocks – including MPC -- was largely due to Heminger’s comments that MPC was canceling a coker project because of a negative long-term outlook on heavy crude differentials. They then drove home the point by blaming narrow crude discounts on Q1 refining results -- that they added the ANDV refineries, ran at 95% utilization, and managed to generate $334M in refining losses.
    MPC had strong results in Midstream and Retail but Refining was very disappointing.
    Morgan Stanley wrote a note in which they believe the negative market reaction was overdone. I will try to post excerpts on the MPC board.
    #MPC
  • D
    Dennis
    $VLO conversation
    I am posting indicative crack spreads as reported by VLO and MPC only because I have consistently done so in the past.
    As you can see, they look terrible for Q2-20 but, because of unusual events, I’m not sure they represent actual cracks for the quarter. I certainly hope they don't.

    In Q2, both oil and fuel prices doubled during the quarter. In mid-April, a perceived storage problem caused oil prices to go negative for a day or two. (At the CC, one of the VLO execs said they were able to take some advantage of this.)
    Both VLO and MPC took large LIFO inventory write downs at the end of Q1, so we should have started the quarter clean. Both may have “locked in” some of the cheaper oil prices in early Q2. Both may have found better crude prices by varying crude purchases away from assumptions included in indicative crack spread calculations.

    Fuel volume sold does not factor in the calculation of indicative crack spreads but should improve actual margins if – as I expect – throughput has increased from Q1 to Q2. However, Q2 throughput will still be much lower than last year.

    VLO
    The following are the regional crack spread indicators ($/barrel) provided by Valero for
    Q2-20, Q1-20, and Q2-19, respectively:
    Gulf Coast_______ 7.26___12.19____13.93
    Mid Con_________ 8.17___11.32____19.47
    No Atlantic______8.28____8.80____ 11.70
    West Coast______9.67 ___12.28____22.46
    Ethanol ($/gal)____ .20_____ .20_____ .37

    Cost of RINs (cents per gal)
    Ethanol_______39.9____25.1____16.6
    Biodiesel______54.0___45.6_____37.5

    MPC
    These are the regional crack spread indicators ($/brl) provided by Marathon Petroleum for
    Q2-20, Q1-20, and Q2-19, respectively:

    Mid Con ______4.72____7.39____20.43
    Gulf Coast_____2.75____6.48____8.98
    West Coast ___7.44___12.68___21.78
    Blended_______4.62____8.31____16.41

    Please note.
    Calculation of crack spread indicators is not comparable across the 2 companies.
    #MPC
  • D
    Dennis
    $VLO conversation
    Morgan Stanley 9/12 -- VLO -- Hurry Up And Wait

    Marking 3Q EPS to 18% below the Street. Beyond the near term revision risk for the group, we see a positive risk-to-reward skew with recession fears and dismissive IMO 2020 views priced-in. We reiterate our top picks VLO & MPC as the market waits for key signs before turning bullish.

    Lowering 3Q19 EPS 23% to 18% below Consensus. Our MS Base Crack Indicator has largely been flattish this quarter, averaging $14.48/bbl QTD or down a modest 5% QoQ. However, the composition regions have taken differing paths with the US Gulf Coast and Northeast spreads being 17% and 13% higher sequentially QTD while the West Coast and Midcon are down 28% and 15%, respectively. We also note that the strength in USGC and Northeast cracks has started abating in September, having declined 26% and 22% since the beginning of the month. Crude differentials have largely narrowed across the board as well, led by Brent-WTI, narrowing 37% QoQ with EPIC pipeline starting up and falling Cushing inventories, Gray Oak expected to come in service at year-end, and expectations of falling pipeline tariffs. Heavy and sour crude spreads also stayed relatively narrow as supply remains tight. As such we have lowered our 3Q19 EPS by 23% to be 18% below Consensus (Exhibit 1, Exhibit 2). We see the greatest negative earnings revision for PBF by 40%. Conversely, we see the least for HFC (6%).

    Highlights for the rest of the MS note:

    …. Despite the stocks bouncing off their August lows, we believe investors are still largely waiting for the following before becoming bullish: 1) increased clarity of where the global economy is headed, and 2) pricing signals to confirm the refining tailwinds of IMO 2020. We reiterate top picks: VLO for its high quality refining pure-play exposure, and MPC for its discounted SoTP valuation proposition.

    Global growth remains a concern, although we believe this is largely priced in …….

    HSFO (High Sulfur Fuel Oil) cracks have plummeted by $18/bbl over the last six weeks from what we believe is early evidence of the anticipated drop in demand with IMO 2020 approaching…. Sour crude spreads on the other hand have not meaningfully widened yet, likely due to the tightness of supply.

    Significant fall maintenance is approaching, particularly out of Europe and the US. …..

    #MPC
  • D
    Dennis
    $VLO conversation
    VLO
    The following are the regional crack spread indicators ($/barrel) provided by Valero for
    Q2-19, Q1-19, and Q2-18, respectively:
    Gulf Coast______ 13.93___11.27___16.12
    Mid Con________ 19.47___16.07___18.14
    No Atlantic_______11.70___8.89____12.90
    West Coast______22.46___12.00___18.55
    Ethanol ($/gal)_____ .37_____ .33____ .41

    Cost of RINs (cents per gal)
    Ethanol_______16.6___19.7_____30.6
    Biodiesel______37.5___50.5_____53.2

    MPC
    These are the regional crack spread indicators ($/brl) provided by Marathon Petroleum for
    Q2-19, Q1-19, and Q2-18, respectively:
    Mid Con _____20.43____11.70___16.58
    Gulf Coast_____8.98____ 5.23____9.69
    West Coast ___21.78____11.91___17.03
    Blended______16.41_____9.29___14.07

    Note that VLO has adjusted some historical numbers. MPC has not.
    Calculation of crack spread indicators is not comparable across the 2 companies.
    Note that actual crack spreads will include crude oil discounts and purchases from unplanned sources.
    Also note that crack spread indicators are higher for the beginning of Q3

    #MPC
  • D
    Dennis
    $VLO conversation
    Today’s was as good -- for refiners -- of a weekly EIA report as I’ve seen in a long time.
    - U.S. commercial crude oil inventories increased by 7.9 million barrels with totals about 3% above the five-year average for this time of year.
    - Total motor gasoline inventories decreased by 2.8 million barrels last week and are about 1% below the five-year average for this time of year.
    - Distillate fuel inventories decreased by 0.6 million barrels last week and are about 9% below the five year average for this time of year.
    - Over the past four weeks, motor gasoline product supplied averaged 9.5 million barrels per day, up by 2.7% from the same period last year. Distillate fuel product supplied averaged 4.3 million barrels per day over the past four weeks, up by 2.8% from the same period last year.
    - Gasoline exports were over 1 million bpd for the week. Distillate oil exports were light at 974 thousand bpd but this may be influenced by the upcoming new maritime regs.

    While all good news for refiners, the large crude inventory build is bad news for oil producers. The first movement of energy funds – which include refiners – will be negative. Refiners should then rebound.

    #MPC #PSX
  • D
    Dennis
    $VLO conversation
    This video includes a primer on the impact of IMO 2020 plus some very bullish comments (on maritime fuel) from the CEO of Ardmore Shipping.
    The notable downside to all this is that, to the extent US refiners cannot acquire enough heavy sour crude – and use US light sweet – the process will produce too much gasoline, likely resulting in a glut.
    There seems to be very little info as to how this is playing out in the US. (Gasoline inventories are already high.) I look forward to the January refiner conference calls.

    https://www.bloomberg.com/news/videos/2019-12-06/imo-2020-will-lead-to-more-volatility-disruption-ardmore-shipping-ceo-video

    #MPC #PSX
  • D
    Dennis
    $VLO conversation
    I cannot explain the last 2-day decline in VLO and MPC stocks. Both beat on earnings and MPC’s planned restructure was viewed as positive. Last Wednesday, the EIA reported weak January US fuel sales and high US gasoline inventories. Before Friday, these two developments seemed to offset each other

    Today, Bloomberg reported that China’s oil demand has dropped 20% because of the virus lockdown. Chinese refineries have slowed or shut fuel production as inventories build. World crude prices have declined and OPEC will meet this week to initiate production cuts. It’s unclear how any of this will affect US gasoline sales and crack spreads.

    EV sales will eventually have a significant, negative impact on gasoline sales. EV sales in the US have been in decline since July – only Tesla is selling – so why would refiners react to EV threats now? There may be a reason of which I am not aware.

    Admittedly, the two stocks have been quite volatile and are trading fairly close to the midpoint between the late August low and early November high. Sentiment towards refiners seems overly negative but that doesn’t mean it isn’t justified or that it will soon reverse itself.

    If you think you have some insight, please share. Your reply will appear on both pages
    #MPC
  • D
    Dennis
    $VLO conversation
    Goldman Sachs says a shift to cleaner fuel for ships should help the companies.
    Goldman Sachs says a shift to cleaner fuel for ships should help the companies.
    www.barrons.com
  • D
    Dennis
    $VLO conversation
    #VLO #MPC #PSX
    GREAT FALLS, Mont. — A federal judge in Montana has blocked construction of the $8 billion Keystone XL Pipeline to allow more time to study the project's potential environmental impact.

    The Great Falls Tribune reports U.S. District Judge Brian Morris' order on Thursday came as Calgary-based TransCanada was preparing to build the first stages of the oil pipeline in northern Montana. Environmental groups had sued TransCanada and the U.S. Department of State in federal court in Great Falls.

    Morris says the government's analysis didn't fully study the cumulative effects of greenhouse gas emissions, the effects of current oil prices on the pipeline's viability or include updated modeling of potential oil spills.

    The 1,184-mile pipeline would transport up to 830,000 barrels of crude a day from the Canadian province of Alberta and Montana to facilities in Nebraska.
  • D
    Dennis
    $VLO conversation
    #VLO #MPC #PSX
    MS comments on IMO 2000, October 22, 2018
    We believe the reaction by refining stocks on the fear of an IMO 2020 delay is overdone. We are skeptical on how much of an impact White House involvement this late in the game will have.

    Refining stocks sharply fell 5% (7% in the US and 3% in Asia) on headlines the White House is seeking to slow IMO 2020. On Thursday (Oct. 18), the Wall Street Journal reported that the US administration is concerned the approaching marine fuel regulation change will have a damaging effect on the economy with rising fuel costs (see here). White House representatives have stated there is no intent to withdraw or delay the implementation of IMO 2020. However the US is backing a proposal that calls for enforcement measures to be pragmatic, particularly until there is clarity around compliant fuel availability (see below). We are skeptical of how significant an impact the US can have this late in the game given: 1) the International Maritime Organization (IMO)has publicly rejected any calls to water down the fuel cap,2) the fuel change already has wide support from many countries including the EU and China,3) a coalition of at least ⅓ IMO members would be needed to advance amendments, and 4) the organization's rule making process can take up to ~22 months. Nonetheless we recognize there will likely be continued uncertainty until the rules, particularly around enforcement, are fully finalized and clear, but believe the recent negative reaction of refining stocks was overdone. We remain bullish and believe IMO 2020 is still an incremental tailwind to global and complex refiners who are already attractively set up with a constructive S/D picture.
  • D
    Dennis
    $VLO conversation
    The problem has been too many starts and stops in with what should have been consistent medical and economic improvement. July was a bit rough. These EIA numbers are published on Wednesday morning.
    #MPC
    US gasoline supplied (thousand barrels per day) for week ending
    4/3 ------ 5065 tbd
    4/10 ---- 5081
    4/17 ---- 5311
    4/24 ---- 5860
    5/1 ----- 6664
    5/8 ----- 7398
    5/15 ---- 6790
    5/22 ----7253
    5/29 --- 7549
    6/5 ----- 7900
    6/12 --- 7870
    6/19 --- 8608
    6/26 --- 8561
    7/3 ----- 8766
    7/10 --- 8648
    7/17 --- 8550
    7/24 --- 8809
    7/31 --- 8617
  • D
    Dennis
    $VLO conversation
    VLO
    The following are the regional crack spread indicators ($/barrel) provided by Valero for
    Q4-19, Q3-19, and Q4-18, respectively:
    Gulf Coast_______ 15.49___15.80____12.16
    Mid Con_________ 15.49___17.33____16.52
    No Atlantic_______11.68____13.25____ 9.03
    West Coast_______18.16 ___19.03 ___12.37
    Ethanol ($/gal)______ .47_____ .37____ .27

    Cost of RINs (cents per gal)
    Ethanol_______14.4___19.0_____13.1
    Biodiesel______56.1___45.7_____39.8

    MPC
    These are the regional crack spread indicators ($/brl) provided by Marathon Petroleum for
    Q4-19, Q3-19, and Q4-18, respectively:
    Mid Con _____10.93____15.26___13.08
    Gulf Coast_____8.50____10.05____4.32
    West Coast ___17.58____17.77___11.74
    Blended______11.60____13.88____9.43

    DISCLAIMER – I cannot determine if the above indicator calculations included any accounting for IMO 2020 marine fuel.
    Hopefully, these fuels have been excluded above but have contributed to actual Q4 crack spreads

    Please note that, as always, actual crack spreads will include crude oil discounts and purchases from unplanned sources
    Calculation of crack spread indicators is not comparable across the 2 companies.
    #MPC
  • D
    Dennis
    $VLO conversation
    According to EIA, for the week ending January 3rd, total motor gasoline inventories increased by 9.1 million barrels and are about 5% above the five-year average. Someone said that this was the largest increase in 15 years.

    US crude oil inventories are at the 5-year average. Distillate fuel inventories increased by 5.3 million barrels but are 8% below the 5-year average.

    It is my understanding that making low sulfur diesel fuel from light sweet crude – most abundant in the US – results in the overproduction of gasoline. With IMO 2020 having just become law, I suspect that this explains the gasoline inventory numbers.

    I am looking forward to the refiner conference calls at the end of the month to learn how all of this is expected to settle.
    #MPC