One-year refining crack, the difference between the wholesale price of heating oil and gasoline products and the price of crude oil, is oscillating around the 40-week moving average above $11 a barrel.
Our long-term assumption for calculating present value is $10 a barrel. There is an economic need for more refining capacity and the cost of new facilities would require at least $10 a barrel in gross margin for products refined. There is also a need for higher environmental standards that would in turn require more highly refined products.
The median buy recommendation has about 15% exposure to downstream operations including oil refining. Lowest McDep Ratio stocks with downstream exposure 20% or more of value include Chevron (CVX), ConocoPhillips (COP), Lukoil (OTCPK:LUKOY), Royal Dutch Shell (RDS-B) and PetroChina (PTR).
Kurt Wulff's McDep Associates offers realtime, independent research services for investors in the energy and utilities sectors. For more information, go to www.mcdep.com or email Mr. Wulff at firstname.lastname@example.org.
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