Oil is careening down at an extraordinary pace. Somehow the obvious beneficiary of this move has been ignored: the refiners. Refiner share prices are hugging the floor. Recall they were the darlings a year or two ago but got punished (and then some) as oil skyrocketed. Refiners had to buy that oil to make their products; their once robust profits were gone. Holly (HOC) has gone down 58%, Valero (VLO) 54%, Tesoro (TSO) 63%, Western Refining (WNR) 77%, all in a dizzying year.
So what have the refiners done in what should be their new halcyon days? After all, they can buy oil at far better prices. Gone up? No, continued to spiral down.
Lets see. Oil down from 140s to 104. Imported gasoline decreasing ($80 soon? $60?). Gas cracks are widening unusually fast -- the Gulf Coast Gas Crack 3-2-1 has gone from $10.64 to $18.36 in 2 weeks! This should be refiner heaven. At the same time, as oil prices slide, one would expect future increased consumption of gasoline as drivers have to contend with lower pump prices. Should further help the refiners.
Which one? Holly's refineries are no where near the hurricane belt. Its only debt is that recently taken on because of its huge holdings in Holly Enterprise Partners (HEP). It has $270 million in cash, shrinking share float due to large buy backs, almost a 50% share of HEP, and an asphalt company. After you factor that all out, you get their increasingly valuable refineries at next to nothing. Plus, they are upgrading their refineries to handle cheaper grades of oil.
This is the time to buy Holly and the other refiners. They are the true beneficiaries of declining oil.
Disclosure: Author holds long positions in HOC and VLO.