Phillips 66 posts record quarterly profit on refining strength

Phillips 66 disclosed on Wednesday its record quarterly profit, significantly surpassing Wall Street’s expectations, driven by elevated refining margins due to fuel supply disruptions originating from conflicts in Iran and Ukraine. The US fuel producers profited from remarkably wide refining margins as global fuel supplies tightened and inventories dwindled because of the war-related supply crunch in both the Middle East and Russia.

Diesel prices, crucial for various sectors like manufacturing and agriculture, hit unprecedented heights, adversely affecting consumers and President Trump’s Republican party, but presenting a significant advantage for refiners. Valero Energy and HF Sinclair also reported record third-quarter profits, solidifying the role of US refiners as primary beneficiaries of the supply disruptions, while refinery utilization reached multi-year peaks.

Phillips 66’s shares increased by 1.32%. The company’s enhanced ability to capture value in the refining segment, as per executives, stemmed from robust distillate margins and advantageous freight positioning. The realized margins in the third quarter stood at $38 per barrel, a notable rise from $24.08 per barrel in the preceding quarter.

Brian Mandell, the company’s executive vice president of marketing and commercial, expressed optimism about the market conditions during a call with investors. The company achieved a record distillate yield of 41% in the third quarter. Additionally, Phillips 66 had secured more than 40 time-chartered vessels before freight markets tightened and plans to add 40 more ships in the next two-and-a-half years at rates below the current market levels.

This strategic move provided the company with a cost advantage as tanker rates surged, offsetting the higher transportation costs faced by other market participants. Phillips 66 reported an adjusted profit of $14.08 per share for the three months ending September 30, surpassing analysts’ average estimate of $11.73. The company's net income soared to $5.62 billion from $133 million a year earlier, marking its highest quarterly profit on record.

The renewable fuel segment's adjusted earnings increased to $191 million during the quarter, up from a loss of $43 million in the previous year. The company's Coastal Bend expansion project, currently on track, is expected to see initial volumes in the fourth quarter, with full ramp-up to 350,000 barrels per day anticipated by early 2027.

This improvement will enhance transportation between Permian and Eagle Ford output and NGL processing plants in Corpus Christi and Sweeny, Texas. In August, Phillips 66, Kinder Morgan, and HF Sinclair announced their commitment to proceed with the proposed $5 billion Western Gateway Pipeline system, finalizing a joint venture agreement.