April 30, 2026 [Reuters]- Phillips 66 posted a surprise first-quarter adjusted profit on Wednesday, as strong refining margins and higher capacity utilization helped the company offset the ​impact of volatile commodity prices.

U.S. Gulf Coast refiners are benefiting from some of the strongest margins in ‌years, as disruptions to Middle Eastern oil flows following the Iran war have lifted demand for U.S. fuel exports. U.S. refining margins, measured by the 3-2-1 crack spread , rose about 73% on average in the first quarter from a year earlier.

Phillips 66’s realized ​refining margin climbed to $10.11 per barrel in the first quarter from $6.81 a year earlier, while its refining ​segment swung to an adjusted profit of $208 million from a loss of $937 million.

“Refining capture rate ⁠much stronger than expected,” said Raymond James analyst Justin Jenkins said in a note, adding the refiner saw ​upside in its commercial activities, improved product differentials, and got some support from inventory impacts.

Shares of the company were ​up more than 6% at mid-day.

RISING ENERGY PRICES

A sharp rise in commodity prices during the quarter, however, reduced the value of the company’s hedges, offsetting gains from stronger underlying operations.

Phillips 66 recorded $839 million in related losses as rising prices eroded the value of ​those hedging positions.

Analysts expect some of the losses to reverse in the coming quarters.

The refiner has been expanding its ​midstream and export capacity.

Phillips 66’s crude capacity utilization rose to 95% from 80% a year earlier, reflecting stronger operations, while its ‌turnaround ⁠expenses fell to $178 million from $270 million.

The company said it increased NGL fractionation capacity at its Sweeny complex in Texas by 23% and boosted capacity at its Freeport LPG export dock by 15%, following the completion of debottlenecking work in 2025.

The Houston, Texas-based company reported an adjusted profit of 49 cents per share for the three months ended March ​31, compared with analysts’ ​average estimate of a loss ⁠of 40 cents per share, according to data compiled by LSEG.

BULLISH IN REFINING

“Refinery runs are strong, consumer demand is healthy, fuel production is relatively stable,” said Brian Mandell, ​Phillips 66’s head of marketing and commercial. “This highlights how we’re immune to the crisis, ​although not ⁠to the higher prices.”

The refiner purchased most of its crude from Canada, Latin America, or domestically, Mandell said, noting that only 1% of its crude was sourced from the Middle East.

Executives expect to see high product margins continue into the ⁠early part ​of next year, even if the Strait of Hormuz opens in ​the next month or two.

“We are in a very, very good position,” he said.