Valero Energy Corporation (VLO), Marathon Petroleum Corp (MPC): Should RIN Risks Make You Abandon Refiners?

As previously discussed, hitting the 10% blend wall means that the majority of the RIN pain is over. On the plus side Marathon Petroleum Corp (NYSE:MPC) runs a smaller operation than Valero Energy Corporation (NYSE:VLO), making it easier for Marathon to produce more of its own biofuels if it so desires. In the coming years Marathon Petroleum Corp (NYSE:MPC) has a number of positive influences on its margins, as it is in a great position to buy cheap oil sands crude with its recently upgraded Detroit refinery.

Phillips 66 was recently spun off from ConocoPhillips, and it has a similar story to Marathon Petroleum Corp (NYSE:MPC). The company does not want to say exactly how much its RIN bill increased, but rough analyst estimates place it around $248.5 million, while the rise in RIN pricing helped its marketing segment to grow its net income boost by $80 million. Don’t expect the company’s income to come back instantly, but it is expected to boost its income by growing its export capacity by 80 thousand barrels per day within three years. Refined products like gasoline and diesel fetch higher prices in Europe, and Phillip 66’s expanded export capacity will allow it to better serve foreign markets.

Conclusion
The nation’s fuel blend is currently 9.74% biofuels and America is driving less; thus the year by year stable ethanol production is pushing us closer to the blend wall. Replacing America’s car fleet with vehicles that can handle higher amounts of biofuels will be a very long process.

Valero Energy Corporation (NYSE:VLO) is not a high growth stock, but it is relatively safe. Its ethanol operations help to shield it from volatility in the RIN market. Marathon Petroleum Corp (NYSE:MPC) and Phillips 66 offer overall higher margins, but watch carefully to see if they buy up more ethanol plants to deal with the government’s RIN requirements.

The article Should RIN Risks Make You Abandon Refiners? originally appeared on Fool.com and is written by Joshua Bondy.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

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