The MPC-PSX stock price spread continues growing

This chart shows a steadily growing gap between the price of Marathon Petroleum Company stock (MPC, in green) and Phillips 66 stock (PSX, in red) since the first trading day of 2021.  Since the summer of 2021, I have been pointing to this gap and saying it will continue to grow because it is caused by the “octane/sulfur squeeze” which was triggered by the full implementation of the Tier 3 gasoline sulfur specification in 2021.

If we zoom out on this chart, now setting time zero to July 2, 2019, so this chart now spans 3 1/2 years, we see the two stocks moved much in tandem until the divergence started in 2021. 

In fact, if you look at a 10-year chart, this current divergence stands out as extraordinary even in a 10-year history. What is the cause? I say it is a shift in who is capturing bigger margins on gasoline, and that difference is because MPC’s refineries are better equipped to produce the 21st century ultra-low sulfur clean gasoline required by the new Tier 3 specification.

This is an unpopular, contrarian theory you won’t read about elsewhere. There is much more hard data behind it, and predictions that have stood the test of time, while all alternative theories have failed. For more details, see this video from an industry conference and check out related posts on this blog.

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 expert in a day. Once you have become expertly informed of the problem, you can save your team years of research by buying Hoekstra Research Report 8. We saw this problem coming, gathered the required data, ran the simulations and analyzed the results so you and your team can immediately initiate well-informed strategies. The report includes detailed pilot plant and commercial field test data, full detail of sulfur credit pricing, spreadsheet models to help improve gasoline optimization, investment decisions, 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