Independent Oil Refiners Face Hard Times in 2009 and Beyond

A perfect storm of steeply falling demand and continued additions to refining capacity are hitting independent oil refiners’ profit margins, and the industry is expected to experience “maximum stress through at least 2009,” said Moody’s Investor Services in a report explaining its ratings downgrade of the group to negative from neutral.

While cyclicality is built into our refining outlooks, the move to a negative outlook stems from demand changes that appear to be structural and enduring.

Moody’s said the fall-off in demand is the steepest since the early 1980s, suggesting more lasting damage to worldwide refined oil demand in coming years.

High complexity refiners, such as Tesoro Petroleum (TSO) and Valero Energy Corp. (VLO), are better positioned to ride the down-cycle, Moody’s said, and noted that refiners came into the downturn after four straight years of strong margin growth.

See Moody’s full industry outlook at “Independent Refining and Marketing.”

Comments

[Armie:]

you all have no idea what you talk off .. great company great earnings ... wow great great ......................... guys should hide now ......

2008 Oct 28 08:14 AM

[Armie:]

Valero Set To Win In New Pricing Environment (VLO)
Valero Energy Corp. (NYSE: VLO) looks set to surge after the refinery giant posted earnings. The company posted $1.86 EPS from continuing operations, which may have some questionable numbers because some other operations from the Krotz Springs refinery have not been presented as discontinued operations. But on a net basis, the company posted $2.18 EPS. First Call estimates were only $1.54 EPS.


The company's gain in earnings was mainly due to higher margins for distillate products in diesel and jet fuels. Valero also said that a decrease in margins for gasoline was partially offset by the higher margins for distillate products.

Valero may also be entering the sweet spot in energy land. If oil stays in a range of say $60 to $80 per barrel, or maybe even $60 to $100, it can sufficiently make its business model work. When energy goes in a straight line from $60 to $100 and $100 to $140, or when oil goes from $140 down to $80 in a straight line, it gets very hard for managers to plan. But a stable pricing environment will create stable margins for the refining sector.

After a 70%+ sell-off and a forward P/E of roughly 4.0 to 5.0, you might even think that Wall Street would have accepted anything.

Valero shares are up almost 12% at $16.85 pre-market. Its 52-week trading range is $14.59 to $73.68.

Jon C. Ogg
October 28, 2008

2008 Oct 28 09:13 AM

[tunetopper:]

Why do you talk down the sector that is MOST UP each day? Are you trying to give aid and comfort to someone? Are you all really just shills for the Hedge Funds?

2008 Oct 28 09:55 AM

[tunetopper:]

Why do you talk down the sector that is MOST UP each day? Are you trying to give aid and comfort to someone? Are you all really just shills for the Hedge Funds?

2008 Oct 28 09:56 AM

[Research Recap:]

Our aim is simply to pass on interesting research whether it is positive or negative. Angus Robertson, Editor

2008 Oct 29 01:24 PM

[Judicious1:]

I live in Los Angeles and couldn't agree more that refiners are in serious trouble as gas powered vehicles will be a thing of the past in a few years. There are plans to make a "dirt lane" on the 405 freeway which will be opened up to horses for those of us that want to reduce our carbon footprint or can no longer afford the price of petrol.

Watch out VLO and TSO, the good old US of A is getting off fossil fuels just like we said we would back in the '70s....LOL!

2008 Oct 30 03:09 PM