Houston, Texas-based refiner Phillips 66 (NYSE:PSX) has exceeded Wall Street estimates for the fourth quarter as U.S. refining margins posted a strong rebound from 2024 lows. Phillips posted Q4 EPS of $2.47, $0.32 above the Wall Street consensus, while fourth quarter earnings of $2.91 billion represented a big jump from third quarter earnings of $133 million, and also generated $2.8 billion of net operating cash flow.
Refinery margins for the quarter, measured by the 3-2-1 crack spread, improved 45% Y/Y on average thanks to a rebound in product cracks from 2024 lows, driven by tighter global supplies, lower feedstock costs (widening crude differentials), and high utilization rates. Increased demand for fuel, paired with strong operational performance and higher, cheaper, heavy crude imports, significantly boosted profitability.
Phillips 66 refining operations operated at 99% crude capacity utilization while the company delivered a record clean product yield of 88%. The improved bottom line helped the company pay down debt by $2.0 billion during the quarter, finishing the year with net debt of $19.7 billion.
PSX shares have been fast off the blocks, gaining 14.8% in the year-to-date as the company continues to execute successfully. Back in December, Phillips 66 approved a $2.4 billion capital budget for 2026, targeting growth in midstream natural gas liquids (NGL) and high-return refining projects to enhance shareholder value.
The 2026 plan includes $1.3 billion for growth and $1.1 billion for sustaining capital, aiming to optimize refining margins and expand pipeline capacity. The NGL growth target includes the Coastal Bend pipeline expansion to 350,000 barrels per day by the final quarter of 2026, and the 300-million-cubic-feet-per-day Iron Mesa gas processing plant (Permian Basin) expected in the first quarter of 2027. Meanwhile, expansion for the refining segment includes over 100 low-capital projects to improve feedstock flexibility and a gasoline quality project at the Humber refinery.
U.S. refiners are expected to benefit from lower fuel production costs as Venezuelan oil exports ramp up. Last month, Phillips 66 and Valero Energy (NYSE:VLO) bought the first cargoes of Venezuelan crude, part of exports of up to 50 million barrels under the Trump administration.
By Alex Kimani for Oilprice.com
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