Phillips 66 Books $900MM in Hedging Losses as Prices Surge

Phillips 66 said Monday its first quarter results will include around $900 million in pre-tax mark-to-market losses as a result of the refiner taking a short position in derivatives contracts.

"The sharp increase in commodity prices during the first quarter resulted in a net outflow of approximately $3 billion of cash collateral on derivative positions", the Houston, Texas-based company said in a stock filing.

"To manage these impacts, the company drew on its committed and uncommitted lines of credit, issued and fully drew a new $2.25 billion 364-day term loan and upsized its accounts receivables securitization facility from $1.25 billion to $1.75 billion".

The United States Energy Information Administration's (EIA) latest "Short-Term Energy Outlook", released March 10, forecast Brent crude prices would stay above $95 a barrel over the next two months, the highest levels since September 2023, due to the ongoing war in the Middle East.

Brent prices could fall to $80 per barrel in the third quarter of 2026 and around $70 per barrel, the EIA said.

"The primary risk that would cause oil prices to continue rising is an extended closure of the Strait of Hormuz, which is a major world oil transit chokepoint through which nearly 20 percent of global oil supply flows", the EIA said.

"Once oil flows are reestablished through the Strait of Hormuz, we expect global oil production will continue to outpace consumption over our forecast period, resulting in global oil inventories increasing by an average of 1.9 million barrels per day (b/d) in 2026 and by 3.0 million b/d in 2027", the EIA added.

"Growing oil inventories will again begin to weigh on oil prices, and we expect the Brent price will fall to an average of $70/b in 4Q26 and $64/b in 2027".

Phillips 66' net short position in crude and oil products committed to the derivatives market stood at about 50 million barrels as of March, according to the disclosure with the U.S. Securities and Exchange Commission.

Phillips 66 noted that "the associated increase in current market value of the underlying physical inventory is not reflected in book value".

"[T]he company routinely carries a net short position in crude oil, refined petroleum products, natural gas liquids and renewables feedstocks-related derivative contracts. The company's practice is to utilize these short derivative positions as economic hedges to manage price risk for certain of its physical positions associated with its assets", it explained.

Phillips 66's core refining segment is expected to bear $350-450 million of the losses.

Moreover, the segment is expected to log a negative impact of about $300 million before taxation "from the standard two-week lag in Gulf Coast clean products pricing", Phillips 66 said.

The midstream segment has also been negatively impacted by downtime caused by Winter Storm Fern, "as well as accelerated depreciation associated with a Permian Basin gas plant", it added.

"Chemicals segment Global O&P utilization was impacted by reduced operations at CPChem's Middle East joint ventures.

"Marketing & Specialties segment margins were adversely impacted by sharply rising spot prices".

Phillips 66 said it is "well-positioned to manage further commodity price volatility through ample liquidity and cash generated from operations".

"As of March 31, 2026, the company had approximately $6 billion of liquidity, reflecting $5 billion of cash and cash equivalents and total committed capacity available under credit facilities of $1 billion", the filing stated.

"Total debt was approximately $27 billion and net debt was $22 billion at March 31, 2026. The company remains committed to a total debt target of $17 billion by end of 2027".

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