What happened

Shares of Marathon Petroleum (NYSE:MPC) tumbled 50.2% in March, according to data provided by S&P Global Market Intelligence. A variety of factors weighed on the oil refiner, including cratering demand and the outcome of its strategic review. 

So what

The rapidly spreading COVID-19 outbreak is forcing governments around the world to shut down much of their economies. That's sapping demand for refined petroleum products such as gasoline and diesel, which is weighing on pricing. At one point, refining margins went negative, meaning it cost a refiner more to produce a product than it could sell it for on the open market. 

An oil refinery at twilight with oil storage tanks in view

Image source: Getty Images.

That forced refiners such as Marathon to reduce their output. These lower refining rates, as well as weaker margins, will cut deeply into the company's cash flow. 

The COVID-19 outbreak also caused the reported suitor of Marathon's Speedway gas station business to walk away from the deal. Marathon would have received $22 billion in cash if the transaction went through, which it could have used to repay debt and repurchase shares. Instead, it plans to continue with its original strategy of spinning that business off to shareholders. 

Meanwhile, the company also concluded the strategic review of its midstream business, which includes its ownership interest in MLP MPLX (NYSE:MPLX). It opted to retain that business rather than selling it or spinning it off to shareholders. The main rationale behind keeping MPLX is that it distributes $1.8 billion of cash to Marathon each year, which helps offset its more volatile refining business as well as the cash flow it will lose once it spins off Speedway. 

Now what

Last month was a brutal one for the energy sector. Oil and refined products demand and prices plummeted, which is cutting into the cash flow the industry produced. It also weighed on asset values, which caused the potential sale of Marathon's gas station business to fall apart as well as forcing it to retain its current midstream structure.

These issues will likely continue weighing on Marathon's value until demand for refined products improves and the company competes the restructure of its portfolio.