Investors should monitor GRMs and crack spreads in the regions where a company’s refineries are located. For example, PSX and Marathon Petroleum (MPC) have a large portion of their refining capacities on the US Gulf Coast, and tracking these companies’ Gulf Coast GRMs can hint at the profitability of each company.
Investors can also consider benchmarks like the 3-2-1 crack spread. According to the EIA (US Energy Information Administration), the 3-2-1 crack spread is derived by subtracting the cost of three barrels of crude oil from the combined value of two barrels of gasoline and one barrel of distillate. If investors track the US Gulf Coast WTI (West Texas Intermediate) 3-2-1 crack, they can understand the direction of refining margins for refiners like PSX and MPC in the near-term.
For exposure to refining stocks, investors can consider the iShares North American Natural Resources ETF (IGE), which ETF has ~6% exposure to refining and marketing sector stocks.
View more information: https://marketrealist.com/2016/11/refining-margins-key-indicators-refining-profitability/