NEW YORK, April 29 - Phillips 66 posted an unexpected adjusted profit for the first quarter, driven by robust refining margins and improved operational throughput that helped offset the impact of volatile commodity prices on its hedge positions.
The company said its realized refining margin rose to $10.11 per barrel in the quarter, up from $6.81 in the same period a year earlier. That gain, combined with greater capacity utilization, enabled the refining segment to move to an adjusted profit of $208 million, a marked reversal from a $937 million loss a year earlier.
Industry-wide dynamics supported the improvement. U.S. Gulf Coast refiners have experienced some of the strongest margins in years, the company noted, as disruptions to Middle Eastern oil flows following the Iran war lifted demand for U.S. fuel exports. Measured by the 3-2-1 crack spread, U.S. refining margins rose about 73% on average in the first quarter from a year earlier.
Analysts highlighted the stronger-than-anticipated performance. "Refining capture rate much stronger than expected," Raymond James analyst Justin Jenkins said in a note, pointing to upside from commercial activities, improved product differentials and some inventory-related support.
Phillips 66 reported adjusted earnings of $0.49 per share for the three months ended March 31, compared with analysts' average estimate of a loss of $0.40 per share, according to data compiled by LSEG. The stock reacted positively, trading more than 6% higher by mid-day.
Operational metrics showed meaningful improvement. Crude capacity utilization climbed to 95% from 80% a year earlier, reflecting stronger runs and a reduction in turnaround activity. Turnaround expenses decreased to $178 million from $270 million. The company also noted investments in midstream and export infrastructure: NGL fractionation capacity at the Sweeny complex in Texas increased by 23%, and capacity at the Freeport LPG export dock rose by 15% after completion of debottlenecking work in 2025.
Despite the core operational gains, a sharp rise in commodity prices during the quarter reduced the value of Phillips 66's hedging positions. The company recorded $839 million in related losses as rising prices eroded the value of those hedges. Analysts cited by the company expect some of those losses to reverse in future quarters.
On commercial conditions and feedstock sources, Brian Mandell, Phillips 66's head of marketing and commercial, said: "Refinery runs are strong, consumer demand is healthy, fuel production is relatively stable. This highlights how we're immune to the crisis, although not to the higher prices." He added that most of the refiner's crude purchases were sourced from Canada, Latin America or the U.S. domestically, with only 1% coming from the Middle East.
Company executives signaled confidence in the forward margin outlook. They said they expect high product margins to persist into the early part of next year, even if the Strait of Hormuz reopens in the near term. "We are in a very, very good position," Mandell said.
The quarter's results illustrate the dual nature of the current environment for refiners: strong underlying refining economics and higher utilization have materially improved operating profitability, yet rising energy prices can produce large, adverse mark-to-market impacts on hedges. For Phillips 66, those opposing forces resulted in a profitable quarter on an adjusted basis while producing a substantial hedging loss line item.
Investors and market participants will be watching how margins and commodity prices evolve in coming quarters, and whether some of the hedge losses recorded this quarter will be offset by future reversals as analysts anticipate.
Key metrics from the quarter:
- Realized refining margin: $10.11 per barrel, up from $6.81 year-over-year.
- Refining segment adjusted profit: $208 million, compared with a $937 million loss a year earlier.
- Adjusted EPS: $0.49 versus analysts' estimate of a $0.40 loss per share (LSEG).
- Hedge-related losses: $839 million due to rising commodity prices.
- Crude capacity utilization: 95%, up from 80% a year earlier.
- Turnaround expenses: $178 million, down from $270 million.
- Capacity increases: NGL fractionation at Sweeny +23%; Freeport LPG export dock +15% after 2025 debottlenecking.