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The May split that created Phillips 66, now the largest U.S. oil refiner, was nicely timed. Cheaper oil and reduced competition helped the $24-billion (U.S.) company, formerly part of ConocoPhillips, deliver a 14-per-cent surge in second-quarter profit. It's a useful start, but Phillips 66 still needs to beef up its promising chemicals business.

Even before the spinoff, Greg Garland, the new chief executive of Phillips 66, announced plans to cut investment in the legacy refinery business and emphasize diversification into chemicals.

It's therefore slightly incongruous that the company should kick off its independent life by reporting a 53-per-cent jump in refining profits. The much-vaunted chemicals division did fine, but it accounted for just a fifth of total earnings in the quarter.

Even so, Mr. Garland's chemicals-heavy strategy makes sense. The current strength of refining is really luck. For much of the past five years, it has been a business plagued by global overcapacity and ebbing fuel consumption.

It's only over the past year or so that the glut has started to clear as operators have shuttered plants around the world. More important, those such as Phillips 66 with refineries in the American heartland have enjoyed a powerful boost from domestic crude, which is $17 a barrel cheaper than the pricey Brent that most global crackers are forced to buy.

This helps explain why the United States has become a net exporter of petroleum products for the first time since 1949. Shares in Valero and HollyFrontier, two of Phillips 66's biggest domestic rivals, have jumped 30 per cent and 60 per cent respectively so far this year. The Conoco spinoff's stock is up 13 per cent since May.

Yet bottlenecks in U.S. oil pipeline infrastructure that have helped domestic refiners will eventually be addressed. And the country's gasoline consumption is in decline. By contrast, chemicals demand has tended to outpace economic growth, especially in developing countries.

A wave of helpful refining conditions will tide Phillips 66 over, but the company will need other good business lines if it's to secure a solid independent future.

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