The MPC-PSX Stock Price Spread – Update Number Six
Since 2021, I have tracked and reported on the relative performance of Marathon Petroleum (MPC, green) and Phillips 66 (PSX, red) stock on this blog. This is the sixth post in the series. The others are Aug 23 2021, Dec 9 2021, Jan 19 2022, Mar 17 2022, Feb 1 2023.
This latest update shows MPC up 213% and PSX up 68% since 2017:
From 2018 until early 2021, the two stocks tracked together. Then a divergence started which has continued growing.
Why the growing divergence since 2021? My theory, published in this blog and several other industry presentations and publications over the last 10 years, is stated in this pull quote from the August 2021 blog post:
George Hoekstra, Aug 23,2021
Something has been holding back PSX stock. My theory is their refineries are bottlenecked by difficulties making the ultra-low sulfur, high octane blend stocks needed to meet the Tier 3 clean gasoline specification that kicked in at the beginning of 2021. In that situation, a refiner can go in the market and buy those ultra-low sulfur, high octane barrels instead of making them in their refineries, which is a convenient solution, but it cuts their gasoline margin by a factor of five. It effectively papers over a fundamental weakness that will continue to drag down their refining margin and their stock until something is done.
Refiners like Marathon, who are better-equipped to make Tier 3 gasoline at low incremental cost, are the beneficiaries of that foregone margin.
That’s my unpopular, contrarian theory which is detailed throughout this blog and in many of my industry presentations, reports, and other publications.
Many other theories have come and gone. The growing divergence, and my unpopular, contrarian Tier 3 theory still stand strong: Marathon (a refiner we classify in the green category) has a fleet of capable, flexible refineries able to make 21st-century petro-fuels at low incremental cost. Phillips (a refiner we classify in the red category) does not.
Recommendation
Every refining executive should have a comprehensive understanding of the technical, regulatory, and economic aspects of Tier 3 gasoline, the sulfur credit program and how they affect your business. Those wanting a quick education on the Tier 3 issue should get the short book, Gasoline Desulfurization for Tier 3 Compliance, which will make you an industry expert in a day. Once you have become expertly informed of the problem, you can save your team years of redundant work by buying Hoekstra Research Report 8. We are the ones who saw this situation coming, did the research and field tests, ran the simulations and analyzed the results so you and your team can take immediate steps to increase gasoline margin capture in the Tier 3 world. The report includes detailed pilot plant and commercial field test data, full detail of sulfur credit pricing, spreadsheet models to help improve gasoline optimization, sulfur credit strategy and refining margin capture in the Tier 3 world.
Don’t get caught panic buying after the credits spike.
George Hoekstra
George.hoekstra@hoekstratrading.com
+1 630 330-8159
