Phillips 66 posts surprise profit on higher refining margins

In this April 11, 2014 photo made with a fisheye lens, gasoline is pumped into an automobile at a Phillips 66 gas station in Little Rock, Ark. (AP / Danny Johnston)

Phillips 66 posted a surprise first-quarter profit on Wednesday, as higher refining margins helped it offset steep losses tied to volatile commodity prices.

U.S. Gulf Coast refiners are reaping their strongest margins in years, as disruptions to Middle Eastern oil flows due to the Iran war have driven up demand for U.S. fuel exports.

U.S. refiners, which are less dependent on Middle Eastern crude, have been expanding international sales from the U.S. Gulf Coast hub.

Quarterly U.S. refinery margins, measured by the 3-2-1 crack spread CL321-1=R, were up about 73 per cent on average in the first quarter from a year earlier.

Phillips 66’s realized margin rose to US$10.11 per barrel in the quarter, compared with US$6.81 per barrel a year earlier.

The company’s refining segment reported adjusted earnings of US$208 million, compared with a loss of US$937 million a year earlier.

Shares of the company were up 2.2 per cent in premarket trading.

But as a result of a sharp increase in commodity prices during the first quarter, the company’s financial results were impacted.

It recorded US$839 million in mark-to-market losses, related to its short derivative positions used as economic hedges to manage price risk on certain physical positions.

The refiner’s crude capacity utilization in the quarter was at 95 per cent, compared with 80 per cent from a year earlier.

Its turnaround expenses were down at US$178 million in the first quarter, compared with US$270 million a year earlier.

The Houston, Texas-based company reported an adjusted profit of 49 cents per share for the three months ended March 31, compared with analysts’ average estimate of a loss of 40 cents per share, according to data compiled by LSEG.

Reporting by Pooja Menon in Bengaluru; Editing by Shinjini Ganguli