The Kennel

Why The Analysts are Wrong on Alon and Delek

LOL we are long both Alon and Delek (and Western Refining and Giant, soon to be one and the same)...we love the business model and expect them all to thrive short of a complete collapse of the USA economy...but having said that, the reality is that cheaper oil results in reduced refining profits simply because the total difference in dollars between what these companies pay for crude and what they charge for their refined products, assuming margins are proportinally constant, is arithmetically smaller. Meanwhile their fixed costs to run their refining operations are the same. Ergo profits decline.

If your theory that profits should increase while crude prices decline and vice versa is correct, then how do you explain the record 1H06 profits these companies posted as crude prices soared?


Brad Hessel, Manager
The Kennel