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WTI crude settled well above $101/bbl, cutting the premium of North Sea Brent to barely $3 and...

WTI crude settled well above $101/bbl, cutting the premium of North Sea Brent to barely $3 and continuing to hit U.S. inland refiners that had thrived on ~$20 premiums for much of 2012. "Stay away from these stocks until we know in the next 3-4 weeks whether this trend is temporary," Oppenheimer's Fadel Gheit advises. Since May 1: HFC -16%, WNR -13%, CVI -8%, MPC -6%.
Comments (7)
  • On the surface, this obviously doesn't look good. But what is the real price these refiners and VLO for example are paying for the oil they are refining. At one time the spread was very significant. So the question is how much oil did HFC etc., contract for at that price? What if the WTI price was 70$ and the refiner(s) contracted to purchase their entire next year's needs at $80? That would likely lock in a $25 price below Brent. Wonder if they were that brilliant. Perhaps the latest WTI is really for new contracts or additional purchases if demand is up for certain products by certain refiners.
    I wish I knew. The JPM analysts downgraded HFC/VLO/? forget the other. When the downgrade occurred these stocks were priced below their targets, and they have probably dropped another 2 points, yet the aalysts did not drop the target price (if my memory serves me right). I still think more oil is available to refiners than they can process, at least today. And where East Coast refiners were trying to get significant oil deliveries other than Brent priced oil, I have to think whatever advantage that was there is now likely evaporated with both suppliers registering about the same price
    when delivery costs are included. I would suspect this would cause a widening in the spread again but considerably less than it had been. The final question is will there be a price war between Canadian Oil Sands/Bakken/other US producers, and Saudi Arabia/Nigeria/Venezue... al. should the former's production begin to meet needs previously met in part by the latter group?
    3 Jul 2013, 08:49 PM Reply Like
  • Now you tell me, Thanks
    3 Jul 2013, 08:52 PM Reply Like
  • Marathon Petroleum,Valero, and Phillips 66, which I think are the best refiners have been taken to the wood shed. Is that what they say when stocks go down. Marathon was a $90 stock in March. Now 70 and change. Am I jumping in. Not now. The season for the refiners are Oct- March. You can trade them if you are a good market timer, because they have high volatility. Not my cup of tea right now. Lately the best oil stocks to own are Cabot Oil and Gas and Noble Energy. They keep going up no matter what. However, what you can do in October is buy the etfs xop or ieo which has all the refiners in them. Which refiner do I like the best? Marathon, sold out at 81, and will re-enter at some point.
    3 Jul 2013, 09:06 PM Reply Like
  • I feel fortunate to post on a Fadel Gheit commentary. The US is mainly producing light sweet crude oil, some of the sweetest in the world. Compared to the imported crude, much less processing. I'd have expected Gheit to have researched all these company's locked in contract prices before he even commented. He's stating it's only for the next few weeks to month to determine a clearer trend. Whenever he shows up on CNBC, I always listen. The US is cranking so much sweet crude, it likely will be selling soon on a separate index. Brent is for the worldwide, supertanker transportation costs included contract. The future for US crude and oversupply of NG is pretty exciting. We need a serious energy policy from DC. Currently, that might be asking too much, it seems.
    4 Jul 2013, 05:17 AM Reply Like
  • Couldn't agree with you more. But do not the refiners make their profit on the crack spread, the price they sell refine products for minus the price they pay for crude? Look for the price at the pump to rise drastically.
    4 Jul 2013, 09:36 AM Reply Like
  • Dog your right. Policy of grading Canadian drill bit as been delayed by corporations in both countries. Mostly because of future contract deliveries. This will allow refiniers forcasted profit from finish products at the consumer market. Consumer Prices will go up to cover the spread.
    4 Jul 2013, 10:07 AM Reply Like
  • Think about it: The Fed's $84 billion a month buying mostly junk paper from the banks who return the favor by downgrading our largest, most environmentally aware refinery giant, Valero to underperform. this despite incredible profits and a stockholders dream! That translates into billions lost for stockholders and a kick in the nuts for Valero. Ditto for the entire sector!
    5 Jul 2013, 06:57 AM Reply Like
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