Phillips 66 NYSE: PSX reported first-quarter 2026 earnings as management emphasized operational execution and commercial flexibility amid what it called unprecedented commodity price volatility tied to geopolitical events in the Middle East. Chairman and CEO Mark Lashier said the quarter featured extreme moves across crude oil, refined products and European natural gas benchmarks, noting March was the first month in which price moves in all three major benchmarks exceeded the 95th percentile.
Lashier said Phillips 66’s largely U.S.-based footprint and access to “some of the lowest cost and most reliable hydrocarbon corridors in the world” helped the company continue operating at high utilization even as “a significant amount of global refining and petrochemical capacity is down” following the closure of the Strait of Hormuz. He also pointed to a “significant and favorable shift in market fundamentals,” including increased demand for U.S.-sourced hydrocarbons, lower global refining inventories due to unplanned downtime, and reduced petrochemical production because of downtime and higher naphtha prices.
Commercial operations highlighted as competitive advantage
During the prepared remarks, the company detailed how its commercial organization sought to capture value in dislocated markets. The call described a global trading and logistics platform with six offices, an “asset-backed trading model,” and activity of “over 6 million bbl of liquid hydrocarbons every day.”
Management cited several examples of actions taken during the quarter, including moving Bakken crude to the Beaumont terminal and, “leveraging the Jones Act waiver,” shipping it to the Bayway Refinery. The company also said it displaced international crude with domestic grades in its refining system and sold the international barrels into tighter overseas markets, and it placed gasoline from U.S. Gulf Coast blending facilities into the West Coast using the Jones Act waiver.
In addition, management said it increased staffing and logistics capabilities to improve optionality. The company said it added “two dozen originators around the globe” and tripled vessels on time charter over the past two years, securing roughly half of its waterborne crude slate. Management said the tanker market has tightened due to limited spot availability and a large share of sanctioned vessels, contributing to “historic” freight rates, and said locking in freight rates early reduced crude costs into its refineries.
First-quarter earnings affected by mark-to-market losses
CFO Kevin Mitchell reported first-quarter earnings of $207 million, or $0.51 per share, with adjusted earnings of $200 million, or $0.49 per share. Mitchell said results were impacted by $839 million of mark-to-market losses tied to short derivative positions used as economic hedges for price risk on certain physical positions, following “a sharp increase in commodity prices.”
Mitchell said the company had a use of operating cash flow of $2.3 billion, while operating cash flow excluding working capital was about $700 million. Capital spending totaled $582 million. Phillips 66 returned $778 million to shareholders, including $269 million in share repurchases and $509 million in dividends, and Mitchell said the company increased the quarterly dividend by 7% on an annualized basis.
By segment, Mitchell said:
- Midstream results declined mainly due to lower volumes tied largely to Winter Storm Fern, lower margins from customer recontracting, and accelerated depreciation associated with a Permian Basin gas plant.
- Chemicals results increased mainly due to higher polyethylene margins.
- Refining, Marketing and Specialties, and Renewable Fuels results decreased mainly due to mark-to-market impacts.
- Corporate and other pretax loss increased, primarily due to costs associated with decommissioning and redevelopment of the idled Los Angeles refinery site.
Liquidity, debt path, and shareholder returns
Mitchell said working capital used $3 billion in the quarter, largely reflecting an inventory build and higher cash collateral on derivative positions, partly offset by changes in payables and receivables associated with higher commodity prices. He said Phillips 66 increased debt during the quarter by issuing a term loan and drawing on short-term facilities to manage margin collateral requirements. The company ended the quarter with $5.2 billion in cash, compared with $1.1 billion at the start of the quarter.
Addressing analyst questions on the mark-to-market impacts, Mitchell said the losses reflected “mark-to-market impacts on paper hedges” intended to offset physical purchases, and that in typical environments such impacts are not “that significant.” He added that using the forward curve as of the prior day, Phillips 66 would “recover by the end of the year about $500 million” of the mark-to-market impact, though he described it as commodity-by-commodity and dependent on price moves.
Mitchell also said the company had $3.2 billion out on margin at the end of March, which had declined to $2.1 billion as of the prior day despite similar absolute price levels. He said the cash impact would come back through falling prices or through normal purchasing activity as volatility subsides.
On capital allocation, Mitchell reiterated the company’s commitment to return more than 50% of net operating cash flow to shareholders through dividends and buybacks. He said the company remains committed to reaching $17 billion of total debt by year-end 2027 and expects to reduce debt to about $19 billion by year-end 2026 through operating cash flow, working capital benefits, and reduced cash balances as markets stabilize. He also said that if margins remain strong, incremental cash generation could accelerate debt reduction and support additional shareholder returns.
Operational and market updates: refining, renewables, midstream and projects
In the Q&A, management described strong first-quarter refining operations and ongoing cost reduction efforts. EVP of Refining Rich Harbison said refining operating cost was $6.21 per barrel in the first quarter, an improvement of $0.80 per barrel year over year. He attributed quarter-over-quarter cost increases mainly to fewer barrels processed, fewer days in the quarter, planned maintenance, and higher seasonal natural gas prices. Harbison said that normalizing natural gas to $3/MMBtu, the cost metric would move into the “low $5.80s,” adding that the company is “well within striking range” of its $5.50 per barrel target in 2027. He said the organization has more than 200 initiatives underway expected to reduce base operating costs by $0.15 to $0.20 per barrel.
Commercial performance was also discussed through the lens of market capture. On the call, management referenced worldwide market capture of 138% during the quarter, which Lashier attributed to the commercial team’s ability to leverage optionality, including logistics moves such as transporting Bakken crude to New Jersey. In discussing second-quarter capture, management suggested starting assumptions in the “mid-90s,” while noting tailwinds such as butane blending, jet and octane differentials, and headwinds such as backwardation, inventory impacts, and turnarounds.
On renewables, management said it expected improved performance versus the prior year. In response to an analyst question, the company said the “current blended RIN is more than twice what it was in 2025,” and that its renewable diesel operations were running “above nameplate capacity.”
Midstream and project updates included discussion of the Western Gateway pipeline. EVP Don Baldridge said the company expects to finalize joint venture arrangements with Kinder Morgan and execute transportation agreements with third-party shippers, and that it could reach a final investment decision “mid to late summer,” targeting a 2029 in-service date. Baldridge also reiterated confidence in the company’s $4.5 billion midstream EBITDA target by year-end 2027, while emphasizing capital discipline and returns-focused growth.
Looking ahead, Mitchell provided second-quarter expectations, including global olefins and polyolefins utilization in the low 80s due to uncertainty around operating levels at CPChem joint ventures in the Middle East, and worldwide crude utilization in the low-to-mid 90s. He said turnaround expense is expected to be $120 million to $150 million, and corporate and other costs are expected to be $430 million to $450 million.
About Phillips 66 NYSE: PSX
Phillips 66 NYSE: PSX is an independent energy manufacturing and logistics company engaged primarily in refining, midstream transportation, marketing and chemicals. The company processes crude oil into transportation fuels, lubricants and other petroleum products, operates pipeline and storage infrastructure, and participates in petrochemical production through strategic investments. Phillips 66 serves commercial, industrial and retail customers and positions its operations across the value chain of the downstream energy sector.
The company's principal activities include refining crude oil into gasoline, diesel, jet fuel and feedstocks for petrochemical production; operating midstream assets such as pipelines, terminals and fractionators that move and store crude oil and natural gas liquids; and marketing and distributing fuels and lubricants through wholesale and retail channels.
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