Crack Spread

[yclept]

Jubak had a column the other day where he addressed the time (seemingly not far off) when we won't have to worry about the crack spread, 'cause there won't be much of anything to crack:

jubakpicks.com/2011/04/25/run-away-oil-consumption-in-the-middle-east-eats-at-saudi-ability-to-meet-production-emergencies/

[Value Buy]

Apr 27, 2011 23:03:28 GMT -5 clarkrl2 said:

rovo I mentioned in post 15 VLO preannounced they would miss estimates due to hedging. Yahoo's article was the one I mentioned in my last post and it said VLO that Valero reported "Valero said its earnings were trimmed by 20 cents a share, mainly due to turnaround-maintenance delays at its refineries." A Marketwatch article said they expect second quarter earnings to be stong but they didn't give a target. I am interested in the profit margin on throughput barrels but do not have any information at this time.

I noticed that Exxon's profit on gasoline has not tracked the same percentage increase of crude oil.
Would hedging have anything to do with this?
When gasoline profits trail the rise in crude percentage wise, weakens the argument that big oil is raping the public....

[clarkrl2]

yclept I read Jubak's article and it probably has a lot of truth to it. One thing I think is strange, I live in the wind belt but my community generates electricity using diesel. It seems a waste of good wind.

Value Buy I believe all companies involved in refining as their primary business use a lot of hedging. Exxon's refining business is a relatively small part of their revenue but it seems logical they would use some hedging but I just haven't looked at their 10Qs to be able to say for certain. I've always thought big oil receives much more criticism than they deserve. Like any other business they lobby for laws that benefit their profits.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.94%	0.60%
Gasoline Inventories	-0.54%	-1.17%
Refining Capacity	82.80%	82.76%
Gasoline Prices	2.17%	1.97%
Crack Spread	28.23	26.538

TSO and HOC have both reported and beat estimates by $.13 and $.15.

Week	Oil	Gasoline	Retail Gas
Current	100.57	3.14	$3.96
Last	113.56	3.38	$3.88
Two ago	111.42	3.24	$3.84
Three ago	107.7	3.24	$3.79
Four ago	108.58	3.19	$3.68

[Value Buy]

I see oil at just under $102 a barrel, and gasoline is now at $3.27
Nice profit on gasoline over crude.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	1.04%	0.70%
Gasoline Inventories	0.64%	-1.02%
Refining Capacity	81.70%	82.22%
Gasoline Prices	0.05%	1.49%
Crack Spread	28.64	27.214

After an eleven straight week decline in gasoline inventories this week was an increase. The refining capacity is low at 81.7%.

Week	Oil	Gasoline	Retail Gas
Current	97.22	3.06	$3.96
Last	100.57	3.14	$3.88
Two ago	113.56	3.38	$3.84
Three ago	111.42	3.24	$3.79
Four ago	107.7	3.24	$3.68

I have an open debit call spread position in SUN.

[rovo]

Snerdley, This is an investing board. Post relevant information or be gone with you.

[clarkrl2]

It's possible opening the Morganza spillway will effect several refineries. This article lists those refiners which include XOM and VLO. www.bloomberg.com/news/2011-05-12/opening-morganza-spillway-may-affect-10-of-louisiana-output.html?cmpid=msnmoney The article does not mention TSO or HOC.

[clarkrl2]

If the flooding in the lower Mississippi due to opening the Morganza spillway slows the refineries in that area it should benefit those that don't have refineries in the area. This is a little risky but I opened a call spread on TSO with a Jun expiry using 24 and 28 strikes. At the time a put in the order TSO was trading just over 24 and the spread was bid at 1.16. I placed the order for 1 and it filled shortly after TSO fell below 24. I used the 28 strike for the short call because the Apr. high for TSO was just over 28. For this trade to work I'll need oil prices to stabilize and have a trading reaction to the effects of the flood.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.00%	0.61%
Gasoline Inventories	0.05%	-0.36%
Refining Capacity	83.20%	82.58%
Gasoline Prices	-0.13%	0.88%
Crack Spread	22.01	26.024

The crack spread fell to 22.01 this week its lowest since the 3/23/2011 update. Refiners should make a profit at much lower levels than that. I read an article that suggested the spread would fall to around $17.50 this summer but didn't save it because I wasn't sure how the author arrived at the number.

Week	Oil	Gasoline	Retail Gas
Current	100.91	2.93	$3.96
Last	97.22	3.06	$3.97
Two ago	100.57	3.14	$3.96
Three ago	113.56	3.38	$3.88
Four ago	111.42	3.24	$3.84

I still own a call spread on SUN and on TSO with Aug and Jun expirations.

[clarkrl2]

I modified the original post to include a link to the one month 3:2:1 spread. There is also a chart. I put it on the original post to make it easy to find later but hear it is if you want to bookmark it.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.16%	0.77%
Gasoline Inventories	1.85%	0.16%
Refining Capacity	86.30%	83.34%
Gasoline Prices	-2.80%	0.04%
Crack Spread	25.49	26.218

The crack spread has move higher again this week.

Week	Oil	Gasoline	Retail Gas
Current	101.77	3.04	$3.85
Last	100.91	2.93	$3.96
Two ago	97.22	3.06	$3.97
Three ago	100.57	3.14	$3.96
Four ago	113.56	3.38	$3.88

Retail gasoline prices have held steady when compared to the volatility of the crude prices.

I still own call spreads in TSO and SUN. In my opinion TSO and VLO are good for short term trades at these prices.

[clarkrl2]

I was on the road this week and unable to update after the inventories release Thur. June 2 which was delayed by one day due to the Memorial holiday. The crackspread was determined by prices at the close on Thur.

Category	Current	5 Week MA
Oil Invtories xSPR	0.78%	0.58%
Gasoline Inventories	1.24%	0.65%
Refining Capacity	86.00%	84.00%
Gasoline Prices	-1.43%	-0.43%
Crack Spread	25.23	25.92

The inventories for crude and gasoline were both up this week.

Week	Oil	Gasoline	Retail Gas
Current	100.49	2.97	$3.79
Last	101.77	3.04	$3.85
Two ago	100.91	2.93	$3.96
Three ago	97.22	3.06	$3.97
Four ago	100.57	3.14	$3.96

I still own positions in both SUN and TSO.

[clarkrl2]

I was updating the spread sheet this morning and it became clear I missed last weeks update. Since the values I've been posting depend on the last 5 weeks data I will have to see if I can find that data to update the table. In short the crack spread is up to a healthy 28.06. Gasoline inventories are up indicating a possible decrease in demand. Oil inventories are slightly down. The refining capacity has been relatively flat around 86%.

It looks like other factors are driving the markets at this time. I have a bull call spread on TSO that will likely expire out of the money this week and a bull call spread on SUN. I will try to post a table later.

[clarkrl2]

Category	Current	5 Week MA
Oil Inventories xSPR	-0.22%	-0.30%
Gasoline Inventories	-0.23%	0.83%
Refining Capacity	89.20%	86.96%
Gasoline Prices	-1.64%	-1.60%
Crack Spread	27.71	26.493

Since I missed the June 8 update I don't have the oil, gasoline, and heating oil futures for that date. Those values aren't necessary for the above table.

Week	Oil	Gasoline	Retail Gas
Current	92.97	2.86	$3.65
Last	95.14	2.9	$3.71
Two ago	missing	missing	$3.78
Three ago	100.49	2.97	$3.79
Four ago	101.77	3.04	$3.85

The missing futures data is not included in the above table. I still have a call spread on SUN. Today's announcement on the release of some oil from the strategic oil reserve may have some effect on the crack spread over the next few days but so far it seems relatively unaffected.

On snow leopards: I have an old neutered cat named Rocky who believes all cats of all species with the exception of himself are hideous creatures. I do not share that belief. For a number of years I lived in a house right on the edge of town. To the west I had a few peach and apple trees and then past that was nothing but prairie. The neighborhood cats would congregate in the orchard and kept the field mice, gophers and moles from invading the residential properties. I vote leave the snow leopards alone. Rocky votes do away with them and all cats other than himself.

[clarkrl2]

Category	Current	5 Week MA
Oil Inventories xSPR	-1.45%	-0.62%
Gasoline Inventories	-0.65%	0.33%
Refining Capacity	88.10%	87.32%
Gasoline Prices	-2.14%	-1.47%
Crack Spread	28.65	27.125

I still have a call spread in SUN and this week opened a bull put spread in VLO. The crack spread is at 28.65 and has been over 20 all quarter. VLO, SUN, TSO, and HOC all end there 2nd quarter this week. The average estimates reflect the high crack spread. VLO est. Q2 = 1.41 with actual Q1 = .80. TSO est. Q2 =1.21 with actual Q1 = .74. HOC est Q2 = 2.28 with actual Q1 = 1.63. With expectations so high it's possible one or more may miss but there's not any evidence that expectations won't remain high for next quarter as well.

Week	Oil	Gasoline	Retail Gas
Current	95.25	2.95	$3.57
Last	92.97	2.86	$3.65
Two ago	95.14	2.9	$3.71
Three ago	missing	missing	$3.78
Four ago	100.49	2.97	$3.79

The average retail gas prices continue to drop. An arguement I've heard Larry Kudlow and others make on CNBC is these falling prices are like a tax cut for the consumer. I think that arguement fails when you consider the ave. retail price for this week of $3.574 is $0.817/per gallon more than this time last year.

[Value Buy]

Our retail price fell to $3.36 a gallon on Monday.
Yesterday it was $3.859 a gallon uiversally around town.
You gotta love a Holiday week..............
But then again, the futures have been over $3.00 a gallon on gasoline again, emphasis on FUTURES, not present cost..

[yclept]

Clark,
Any thoughts on the MPC spin-off from MRO?

[clarkrl2]

I primarily follow HOC, TSO, and VLO. Unless another refiner shows up on one of my screens like FTO and SUN I don't usually look too close at them. This is because I work full time and the three mentioned all have refining as the major part of their business.

Since MRO hasn't showed up on one of my screens I haven't looked at them lately (probably more than two years). Sorry about that.

[clarkrl2]

Category	Current	5 Week MA
Oil Inventories xSPR	-0.25%	-0.83%
Gasoline Inventories	-0.33%	0.02%
Refining Capacity	88.40%	87.78%
Gasoline Prices	0.14%	-1.16%
Crack Spread	32.01	28.481

The crack spread continues to indicate the refiners will have improved profit margins.

Week	Oil	Gasoline	Retail Gas
Current	98.47	3.11	$3.58
Last	95.25	2.95	$3.57
Two ago	92.97	2.86	$3.65
Three ago	95.14	2.9	$3.71
Four ago	missing	missing	$3.78

I still have positions in SUN and VLO. I have an open order for TSO but it looks like it probably won't fill. Holly merged with Frontier and is now HollyFrontier Corp. with the symbol HFC.

[clarkrl2]

Category	Current	5 Week MA
Oil Inventories xSPR	-0.86%	-0.74%
Gasoline Inventories	-0.38%	-0.26%
Refining Capacity	88.00%	87.94%
Gasoline Prices	1.73%	-0.74%
Crack Spread	32.63	29.812

With the crack spread over 30 refiners should continue to have good profit margins.

Week	Oil	Gasoline	Retail Gas
Current	98.83	3.14	$3.64
Last	98.47	3.11	$3.58
Two ago	95.25	2.95	$3.57
Three ago	92.97	2.86	$3.65
Four ago	95.14	2.9	$3.71

I still have positions in SUN and VLO. My order for TSO never filled but is still open.

[clarkrl2]

Category	Current	5 Week MA
Oil Inventories xSPR	-1.07%	-0.77%
Gasoline Inventories	0.38%	-0.24%
Refining Capacity	90.30%	88.80%
Gasoline Prices	1.13%	-0.16%
Crack Spread	32.04	30.608

The crack spread is still over 30/barrel. RBOB gasoline is in backwardation (decreasing future prices in month further out). Heating Oil and crude are in cantango (increasing future prices in months further out).

Week	Oil	Gasoline	Retail Gas
Current	98.3	3.09	$3.68
Last	98.83	3.14	$3.64
Two ago	98.47	3.11	$3.58
Three ago	95.25	2.95	$3.57
Four ago	92.97	2.86	$3.65

I still own positions in SUN and VLO. I have an order for some TSO calls but it looks as if they won't fill.

[clarkrl2]

Category	Current	5 Week MA
Oil Inventories xSPR	0.65%	-0.60%
Gasoline Inventories	0.47%	-0.10%
Refining Capacity	88.30%	88.62%
Gasoline Prices	0.46%	0.26%
Crack Spread	33.21	31.708

The spread was a little higher but so were the inventories. The capacity was down a little. Sometimes hurricanes season is a catalyst for price movement in refiner stocks. Here's a list by the U. S. Energy Information Administration that includes the barrels/per day and site. www.eia.gov/neic/rankings/refineries.htm

Week	Oil	Gasoline	Retail Gas
Current	97.13	3.1	$3.70
Last	98.3	3.09	$3.68
Two ago	98.83	3.14	$3.64
Three ago	98.47	3.11	$3.58
Four ago	95.25	2.95	$3.57

I still own positions in SUN and VLO.

[clarkrl2]

Category	Current	5 Week MA
Oil Inventories xSPR	0.65%	-0.40%
Gasoline Inventories	0.47%	-0.09%
Refining Capacity	88.30%	88.20%
Gasoline Prices	0.46%	-0.84%
Crack Spread	33.21	30.93

The crack spread is still over 30. This is the WTI spread which is much better than if you use brent crude. When VLO reported they missed earnings in part due to their Candian refineries which are using higher priced crude. The spread on brent crude averaged 11.85 over the quarter which is enough to have a positive impact on earnings. Usually the costs of refining are somewhere in the 5 to 8 dollar per barrel range.

Week	Oil	Gasoline	Retail Gas
Current	97.13	3.1	$3.70
Last	98.3	3.09	$3.68
Two ago	98.83	3.14	$3.64
Three ago	98.47	3.11	$3.58
Four ago	95.25	2.95	$3.57

I still have positions in SUN and VLO. I am looking to start closing out some positions in my portfolio because key support levels are being violated on the major indexes. I think we may be close to some kind of rally and I want to start closing out positions on rallies.

[Value Buy]

talk about reversal of fortunes in a day........Support levels were cut thru like a knife gong thru soft butter
Is the crack spread still the same, or slipping?

[clarkrl2]

You can the current updated crack spread the same way I calculate it at Bloomberg. I have a link to this on the op to make it easy to locate. As of now the spread is 31.78. www.bloomberg.com/apps/quote?ticker=CRK321M1:IND
Even though a strong crack spread will lead to higher earnings I'm afraid the increasing inventories will eventually erode the spread. I would advise anyone thinking of entering a position in a refiner to keep an eye on the spread.

[clarkrl2]

Category	Current	5 Week MA
Oil Inventories xSPR	-1.46%	-1.16%
Gasoline Inventories	-0.74%	-0.56%
Refining Capacity	90.60%	89.30%
Gasoline Prices	-1.00%	0.37%
Crack Spread	35.37	34

The crack spread is now over 35 and the refiner stocks have fallen sharply with the rest of the market.

Week	Oil	Gasoline	Retail Gas
Current	82.09	2.77	$3.67
Last	91.35	2.9	$3.71
Two ago	97.13	3.1	$3.70
Three ago	98.3	3.09	$3.68
Four ago	98.83	3.14	$3.64

For fun I looked at a covered call on VLO with a Sept expiration. The stock closed at 19.26 and the 20 strike call had a bid and last price of 1.34. This would give you a cost basis of 19.26 - 1.34 or 17.92 if called this would be an 11.6% return in 38 days. If not called the 17.92 price is only 28.6% above the five year low of 13.94.

[clarkrl2]

Category	Current	5 Week MA
Oil Inventories xSPR	1.20%	0.07%
Gasoline Inventories	-1.64%	-0.63%
Refining Capacity	89.10%	89.70%
Gasoline Prices	-1.91%	-0.39%
Crack Spread	33.06	32.55

The crack spread remains high but I'm worried about the way the indexes are making lower highs and lower lows.

Week	Oil	Gasoline	Retail Gas
Current	81.32	2.65	$3.60
Last	82.09	2.77	$3.67
Two ago	91.35	2.9	$3.71
Three ago	97.13	3.1	$3.70
Four ago	98.3	3.09	$3.68

I'm a day late with the update this week due to having too many meetings yesterday.

[rovo]

The spread between wholesale and retail gasoline is growing. Strange. I think it used to be something like $0.50 to $0.75. According to your data it was $0.59 4 wks ago and $0.60 3 wks ago.

[clarkrl2]

rovo I believe this is mostly due to retail gasoline prices being calculated on Brent crude not the WTI. That is the reason that VLO was below analyst estimates this past quarter. Their Canadian refinery was using Brent crude. The crack spread using Brent Crude is still reasonable but obviously it has been much higher than the WTI. Thus if the gap between the Brent and WTI increases the retail gasoline price will increase in relation to the calculations in my data.