Permian Crude Discounts Widening Recent moves in spot, and perhaps more importantly, futures spreads

Big moves in spot Permian crude differentials in the past week, with WTI Midland and WTS Midland now at $8.00/bbl and $8.50 discounts to WTI Cushing, compared to $3.15 and $4.25, respectively, a week ago. We believe the impetus for the recent swing is continuing problems at the 146mbpd refinery in Borger, TX jointly owned by PSX and CVE. We estimate this plant can run at least 130mbpd of Midland crude. Borger had a major planned turnaround on all three of its crude units from mid-Feb to early April, and unfortunately, there have been several hiccups in the restart process that are currently limiting crude runs. While the spot moves are nice, what’s more exciting from a refining perspective is the substantial widening of the futures curve. The Dec’18 WTI-WTS spread now sits at $8.40/bbl, vs $6.10 a week ago and $4.05 a month ago. As we noted in our Permian S/D report from last week, we see a shortage of pipeline takeaway capacity in H2’18 through H1’19, which will likely lead to wider discounts on high-quality Midland crude. This dynamic benefits almost every public independent refiner, with notable upside for DK (70% Midland crude slate), HFC (30%), CVRR (22%), and ANDV (14%). Of these four, we continue to recommend DK ($58 target) and ANDV ($133 target).