Phillips 66 (PSX) expects favorable refining margins to persist, extending through 2026 and potentially into 2027. CEO Mark Lashier indicated on a February 4 analyst call that fuel demand is projected to grow, while global refining capacity additions will not keep pace. This imbalance allows refiners to purchase cheaper crude oil and charge more for refined products like gasoline and jet fuel.
Analysts are largely in agreement, with Citigroup Inc. analyst Vikram Bagri noting that 2026 is expected to be another strong year for crack spreads due to demand outstripping supply. The 3-2-1 crack spread, a key profitability indicator for refiners, was around $25 a barrel as of February 11, higher than the previous year and well above earlier lows. While Rapidan Energy forecasts a more balanced market in 2026, they anticipate tightening in 2027.
The company's Q2 2026 earnings are expected to be strong, with the Zacks Consensus Estimate for earnings per share at $7.68, a 222.7% increase from the prior year. Revenue is projected at $36.2 billion, up 7.9%. Phillips 66 has consistently beaten earnings estimates in the past four quarters, with an average surprise of 67.8%.
Phillips 66 and other major US refiners like Marathon Petroleum and Valero Energy are benefiting from an influx of cheaper heavy crude, including from Venezuela, for which they have retooled their plants. This allows them to sustain high refinery utilization and profit from the constructive refining environment. Management also noted that tight product markets are expected to support refining margins for the remainder of the year.
Phillips 66 is also focused on debt reduction and shareholder returns. The company plans to reduce debt by $8 billion, targeting about $19 billion, potentially reaching $17 billion even before the end of 2027 if cash flow exceeds expectations. This includes $2 billion from freed-up inventory valuations, another $2 billion from operations, and a commitment to return 50% of net cash from operations to investors through dividends.
