Our demographics in those areas are still growing, so that overall demand for transportation fuels continues to go up just with demographics. We’ve got access to advantaged crudes that we’ve talked about earlier at each of those locations. And of course, we’ve got these strong local product markets that we’re excited about, especially in the summer months when there’s a lot of travel and there’s a lot of activity going on in the PAD4 and really in the West Coast and the Southwest. So Neil, we’re pretty bullish on this year. We still think that despite the EIA reports, that our areas and our markets are shaping up to have a nice year.
Operator: Your next question comes from the line of Matthew Blair from TPH.
Matthew Blair: Congrats, Tim, on the new role, and Mike on the retirement. I was hoping you could walk through the moving parts on lubricants in Q4. Why did your Rack Back EBITDA improve even though the base oil indicators move down? What was the FIFO impact in the quarter? And then the volume seemed a little low. Was that due to like maintenance or turnarounds on your side? Or was that more due to just like weaker demand and matching production levels to the current demand in the market?
Tim Go: Yes, Matt, this is Tim. Let me just say, again, we’ve been very pleased with the results for our Lubes and Specialties business. We did see lower volumes in the fourth quarter. That’s a combination of just some softer seasonal demand that we typically see in the fourth quarter. But also as prices were dropping, we saw a lot of customers just slowing down, waiting for those prices to drop before they put in their orders. But more importantly, we have been rationalizing some of our low profit opportunity areas. We’ve talked about SKU rationalization for many quarters now. That continued to play out in the fourth quarter. We are purposefully trying to shed barrels that — or gallons that we think are low margin in favor of focusing on the areas that are higher margin.
So what you’ll see is lower volumes, as you pointed out, but you’ll see a higher gross margin per gallon, which you’ll see as well play out in the fourth quarter and really for the year. That’s on purpose. And we think that’s going to continue as we continue to streamline our business and focus on profitability. The other thing I’ll mention, FIFO impacts. We had headwinds in the fourth quarter. It was about a $7 million, $7.5 million headwind. So the — so you can add that back on to the 64 if you want to kind of get a feel for run rate kind of numbers. We’ll continue to see headwinds in the first quarter. But we believe that the underlying business will still show strength. Seasonally, the first half of the year is always a little bit better for lubes.
And then finally, what I would tell you is that the roughly $300 million run rate that we’re seeing here in the fourth quarter, we think will play out as we continue here in 2023. The strength of the Rack Back business, as you pointed out, is really on the Group 3 margins. So your overall comment about base oil margins coming down is true, but it applies specifically to Group 1 and Group 2. Group 3 margins have actually stayed fairly robust. You see that in our published indexes, about $130 a barrel still, and we continue to take full advantage of that in our Rack Bank business. We think that will continue at least here through the first quarter, probably the second quarter as well.
Matthew Blair: Sounds good. And then, Tim, I think you mentioned that WCS spreads have been a relative bright spot. What’s your outlook going forward on WCS spreads, especially given this Trans Mountain pipeline expansion?
