Phillips 66

Overseas supply disruptions have squeezed the world's fuel supply, and Phillips 66 is cashing in. Second quarter earnings hit 3.8 billion dollars, or 9.55 dollars per share, with the refining business alone earning over 3 billion dollars compared to just 392 million dollars a year earlier. The company ran its refineries at 96 percent of capacity to capture as much of that windfall as possible.

Phillips 66 used the cash windfall to cut total debt by 6.6 billion dollars in a single quarter, bringing net debt down to 16.5 billion dollars and hitting a debt target a full year ahead of schedule. That balance sheet repair frees up more cash for dividends and stock buybacks, and the company bought back 379 million dollars of its own shares last quarter alone.

The stock has already climbed roughly 60 percent this year, and today's fat refining profits are being driven by temporary supply shocks overseas, not a permanent shift in the business. When those disruptions ease and global fuel supply catches up, refining margins and Phillips 66's earnings could shrink significantly from these unusually high levels.

Refining is a thin margin business. Net margins run around five percent, and profits depend heavily on the gap between crude oil prices and fuel prices, something Phillips 66 does not control. Storms, refinery outages, and shifts in global oil politics can all hit production and profits with little warning.