Cutting Back on Frontier after Valero and Chevron Warnings

Well in retrospect I am glad I sold Western Refining (WNR) at the open yesterday - the stock is down 4%. It looks like refining margins are under pressure (are we supposed to be surprised by this news? Apparently some people are) - the top independent refiner in the US, Valero Energy (VLO) was out with a warning yesterday, echoing Chevron (CVX) from Tuesday

• Refiner Valero Energy (VLO) warned that its third-quarter profits will fall well short of analysts' estimates, echoing earlier comments from Chevron (CVX) and Marathon Oil (MRO) that margins are coming under pressure in the energy sector.
• Earnings from continuing operations for the quarter, excluding special items, will likely be in the range of $1.30 to $1.40 a share, Valero said Wednesday. Analysts surveyed by Thomson Financial are calling for $1.91. Including items, continuing operations profits will probably be $1.25 to $1.35.
• Valero blamed the outlook on lower throughput margins, primarily stemming from substantially higher feedstock costs because of increased premiums for light sweet crude oils and narrower discounts for sour crude oils and other feedstocks. In total, higher feedstock expenses will probably reduce throughput margins by roughly $700 million in the third quarter compared with the same period last year.
• Many of the company's products, such as asphalt, lube oils and petrochemical feedstocks, sold at much lower margins in the third quarter vs. last year, as prices for those products didn't increase as much as prices for crude oil.

I am surprised this is new "news", and Valero Energy is only down 2%, but I am going to cut my favorite refiner Frontier Oil (FTO) in about half on this news. As I wrote in mid September, Frontier Oil has a unique advantage in that its locations are near to Canadian oil sands, but at this point, I don't want to be overly exposed to a group that should continue to see bad news flow in the near term.

Frontier Oil has actually held up very well and is holding its 50 day moving average, whereas the charts of competitors have been trashed. Hence, I am not leaving totally but am cutting this from a 1.8% position to a 1.0% position. Again, I think most of the bad news is in these names, but then again, I thought that a few weeks ago and some people I guess are not aware of refining margins at yearly lows... duh.

Disclosure: Long Frontier Oil in fund, no personal positions