At the Reuters Global Energy Forum in New York on Wednesday, Phillips 66 CEO Mark Lashier warned that uncertainty stemming from disruptions in the Strait of Hormuz is translating into greater volatility for refining and petrochemical earnings.
Lashier outlined operational steps the company has taken to improve margins in its refining segment. He said Phillips 66 has removed about $1 per barrel of cost from refining so far and is pursuing a target of $5.50 per barrel in cost reductions. He also highlighted that costs in California remain materially higher, at roughly $15 a barrel.
On operational performance, Lashier said the company has both lifted its yield of higher-value products and increased utilization across its refinery network. "We actually have improved our yield of high-value products for our refineries, and we’ve enhanced our utilization, running our refiners at higher rates as we’ve lowered the cost," he said, emphasizing the combined effect of product mix and utilization on refinery economics.
Integration was another pillar Lashier cited as central to the company’s recent results. He noted that Phillips 66’s substantial investment in integrated assets has enabled the company to respond to market dislocations and capture opportunities as regional price dynamics shifted.
As an example of that flexibility, Lashier explained how the company directed refined products into California when that market was relying on comparatively expensive Asian-linked supplies. He also described moving North American crude to the company’s East Coast refineries, which typically source from the Atlantic basin, during a stretch of elevated oil prices. Those flows, he said, illustrate how integrated logistics and asset positioning allowed Phillips 66 to act on regional price spreads.
The comments framed a view of a business navigating a more volatile external environment tied to shipping-lane disruptions while extracting efficiencies and using integration to position supply where margins were most attractive. Lashier’s remarks underscore the dual challenge for refiners and petrochemical producers - managing cost and operational efficiency while remaining exposed to geopolitical-driven swings in feedstock and product pricing.
Context and implications
- Refining and petrochemical earnings are subject to increased short-term swings due to Strait of Hormuz disruptions.
- Phillips 66 reported tangible cost reductions in refining and is targeting deeper savings, with notable higher costs in California.
- The company’s integration across products and geography has been used to move supply into regions with higher prices and to redeploy crude in response to market conditions.