Phillips 66: Oil Price Spike Drives Nearly $1 Billion in Q1 Losses

Introduction

On April 6 Phillips 66 reported its first-quarter results were hit by a nearly $900 million in pre-tax losses after a rapid surge in commodity prices, largely driven by the escalation in the Iran conflict and the resulting disruption to flows through the Strait of Hormuz. Consequently, the stock lost nearly 15% since its high on Friday March 27.

Phillips 66’s losses were driven primarily by its net short derivatives positions tied to refined products, crude oil, LNGs, and renewable feedstocks. This is an example of how a sharp crude rally not only harms consumers with greatly increased prices but can also harm refiners who have to deal with instability when their crude sources and demand drop as the market supply has not increased in line with price hikes.

It is important to note that Phillips 66 has not yet completed its financial closing procedures, and hence actual results could vary from these preliminary Q1 estimates.

What Drove the Loss?

The sharp pre-tax losses are not a collapse or a major internal issue within the business, but rather an unfortunate result of being positioned against the extreme increase in oil prices caused by the war with Iran.

A primary consequence of the conflict was the sharp rally in crude prices following the supply shock caused by the closure of the Strait of Hormuz, which lifted both crude and refined product prices. As of March 31, 2026, Phillips 66 had a net short position in crude and products-related derivative contracts of around 50 million barrels. When crude and product prices surged higher, those positions moved sharply against the company, resulting in large losses that could not have been foreseen.

Typically, refiners can face margin compression and adverse hedging outcomes if feedstock costs jump faster than the economics of their product slate adjusts. However, in Phillips 66’s case, the filing suggests the core issue was not physical operational failure but rather the interaction between extreme crude price volatility and financial positioning.

Timeline

• February 2026: The war between the US and Iran begins to disrupt markets, with the Strait of Hormuz stopping flows and oil supply fears growing.
• March 2026: Crude markets rally violently. Brent rose 64% in March, its largest monthly increase on record, while WTI rose 52%, its biggest monthly gain since May 2020.
• March 31, 2026: Phillips 66 ends the quarter with a net short derivatives position of roughly 50 million barrels across crude and products-related derivative contracts.
• April 6, 2026: Phillips 66 discloses that first-quarter results were $900 million in pre-tax losses. Important to note that these figures are preliminary and may change subject to final closing procedures.
• April 29, 2026: This is when full first-quarter earnings are scheduled to be released, which will give the market a clearer view on whether this was mainly a temporary valuation hit or the start of a broader longer-lasting earnings problem for Phillips 66.

How Has This Affected Phillips 66’s Stock Price?

Phillips 66 opened the year trading at $130 with strong consistent growth. Year to date, Phillips 66 performed with a new growth of 34%. Once Brent crude and WTI crude rose so dramatically, Phillips experienced the opposite. The stock price peaked at $185 on March 27th at a market cap of roughly $75 billion.

As of April 8th, Phillips 66 has lost 15% of its value from March 27th with it now trading at $160. The market currently seems to be waiting for the full earnings release before making any sharp judgments on Phillips 66, seeing whether the damage done by their financial positioning is reversible.

What Are Phillip's 66 Past Production Numbers and Market Prices?

Phillips 66 entered 2026 with relatively strong operating momentum. In its fourth-quarter 2025 results, the company reported 99% crude capacity utilization. This was a 5% increase from the year earlier demonstrating that the refining system had been running at very high rates before the March price shock.

Historically, Phillips 66 has operated as a cyclical stock, with performance closely tied to refining margins, refinery utilization, and investor confidence. When margins weaken, earnings and the share price tend to come under pressure; when margins recover, both usually improve quickly. The last two years for Phillips 66 have demonstrated this pattern.

In Q4 2024, profit fell to just $8 million from $1.26 billion a year earlier, and the stock fell 3.2% that very morning. In Q1 2025, Phillips 66 posted refining margins dropping to $6.81 per barrel and utilization falling to 80%, again weighing on the shares with a 2% drop that morning.

When results improved, in Q2 and Q3 2025 as margins recovered and refinery runs increased, helping restore investor confidence. In Q4 of 2025, Phillips 66 beat profit estimates and its stock price climbed 5% on the day. This reflected a long-term upward trend resulting in almost 40% growth in stock price over the following few months. Realized refining margins rose to $12.48 per barrel, refining earnings improved to $542 million, and crude capacity utilization reached 99%.

This suggested the company was entering 2026 in much better operating shape. That is what makes the latest nearly $900 million pre-tax loss significant. It does not come after a long period of weak operations but rather interrupted a period of improving performance. This is what makes the nearly $1 billion in pre-tax losses significant, it is a positioning shock rather than a structural operational weakness.

Investment View

This brings an opportunity to invest: the stock price hinges less on the headline itself and more on whether the market treats it as a one-quarter dislocation or as a sign of deeper structural business issues. The scale of the mark-to-market loss argues for caution, particularly ahead of the full first-quarter earnings release, when investors will get a clearer view of whether the damage was mostly accounting-driven or whether it fed into weaker operational performance.

That said, this does not look like a broken equity story. Phillips 66 still has scale, strategic refining assets, and an integrated business model that gives it more resilience than the headline figure alone suggests. While the more sensible position is to remain selective and not to buy aggressively until the market has more confidence that the first-quarter shock was temporary rather than symptomatic of something more persistent, we will lean towards the bullish position. We believe that buying Phillips 66 closer to the full earnings release, but while still giving the market time to settle after this initial preliminary report shock, has the potential to be a big gainer for three key reasons.

• Broad-based losses across segments: The losses disclosed this week were spread across several business lines. Phillips 66 said the expected first-quarter hit included $350 million to $450 million in refining, $300 million to $400 million in marketing and specialties, and $100 million to $200 million in renewable fuels. That matters because it shows the shock was not confined to a single desk or an isolated business unit. From an investment perspective, the fact that no isolated part of the business was hit suggests that no core segment has suffered irreparable damage; hence, the quarter looks more like a broad market-driven dislocation than a structural weakness in any one business line. That supports the rebound case, since if commodity conditions stabilize, earnings recovery should come across the portfolio rather than depending on a turnaround in one damaged division.
• A large, flexible refining system amplifies short-term volatility: In scale terms, Phillips 66 has a refining system of roughly 1.5 million barrels per day of combined capacity, which helps explain why moves in crude, products and hedging markets can translate into very large earnings swings. The company can also process around 250,000 barrels of Venezuelan crude per day, underscoring the scale and flexibility of its refining network. Because Phillips 66 has a large and flexible refining network, short-term market shocks can create outsized earnings swings without necessarily changing the strength of the underlying asset base. That supports the rebound case, since once crude and product markets stabilize, the company’s scale and feedstock flexibility could allow earnings to recover more strongly.
• Proven ability to rebound after prior downturns: Phillips 66 has shown before that weak periods in refining do not necessarily last. After a difficult 2024, the company returned to beating earnings estimates in late 2025 as refining margins rebounded, with its refining segment swinging from a $759 million loss a year earlier to $542 million of adjusted earnings in Q4 2025. After declining by 43% from April 2024 to April 2025, the stock later staged a strong recovery, rising more than 75% overall and climbing over 10% above its previous peak as earnings and sentiment improved.

Concluding Statement

Phillips 66’s near-$1 billion mark-to-market loss is a sharp reminder that oil shocks do not only hurt consumers. They can also damage refiners when extreme price moves collide with adverse financial positioning. For investors, the key takeaway is that this was a serious negative event, but not yet definitive proof of structural weakness.

The investment case now depends on whether the first-quarter loss is ultimately absorbed as a temporary dislocation or becomes the start of a broader deterioration in earnings quality and confidence. Overall, while caution is still warranted in the near term, our view remains bullish that Phillips 66 has strong rebound potential if the first-quarter shock proves temporary rather than structural.