Seeking Alpha

Time to reconsider refiners as crude prices drop, Credit Suisse says

  • The price of West Texas crude has dropped nearly 9% during the past month, and Credit Suisse thinks it’s time for investors to take another look at refiners, particularly Tesoro (TSO +1.2%).
  • TSO's "Northern Mid-Con and Pacific North-West are among the best positioned in U.S. refining, with a decade of free cashflow ahead," the firm writes, adding that west coast results demonstrate TSO’s above average asset quality which Carson synergies will cement further.
  • The firm upgrades Calumet Specialty Products (CLMT +1.8%) to Neutral from Underperform as "the themes which drove expected underperformance have now become more visible"; Western Refining (WNR +0.3%) and Delek US (DK -1%) are "interesting."
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Comments (9)
  • Douglas E. Johnston
    , contributor
    Comments (1778) | Send Message
     
    hasn't the price of gas dropped too? Diesel crack is up ~7% Q4 vs Q3, using futures for Nov/Dec, but gas crack is down 34% on quarterly average. So 2/1/1 should be down 10% Q3 to Q4....also WCS is priced to decline to -20 from -40 vs WTI in '14....so i don't see any major rebound in margins at all for refiners.....
    8 Nov 2013, 12:58 PM Reply Like
  • taxman100
    , contributor
    Comments (329) | Send Message
     
    How about NTI with their cost advantage using WCS and Bakken Shale oil?

     

    I know they are only one refinery, but it seems to me they have a pretty good market pretty much to themselves.
    8 Nov 2013, 01:15 PM Reply Like
  • Douglas E. Johnston
    , contributor
    Comments (1778) | Send Message
     
    have not looked at it deeply but the one-refinery thing bothers me a bit...need an extra 1-2% i think...+ have to evaluate the retail side.....i would caution on thinking WCS cost advantage will remain....futures market has it at -40 in Dec going to -20 mid '14. That is a big change due to infrastructure buildout I am sure....will still trade below but it is sour....also, with Bakken getting piped I expect it will go from -10 in Q4 to -8 in '14 and -4 in '15. still owe u one on clmt
    8 Nov 2013, 01:50 PM Reply Like
  • taxman100
    , contributor
    Comments (329) | Send Message
     
    I'm interested in your feedback on the refiners. they have been very good to me since 2009, but nothing lasts forever.

     

    Smart or not, the cash flow from these investments pay my kid's tuition to parochial school. That way my wife can stay home, and we have the family life of "Leave It to Beaver", except she has the nice minivan, and I drive a 14 year old beater.

     

    It's not paying the mortgage, but close enough. I can survive principal impact for a few years if the cash flow remains until I decide to sell.
    8 Nov 2013, 03:45 PM Reply Like
  • Douglas E. Johnston
    , contributor
    Comments (1778) | Send Message
     
    i think they are interesting. I do think there was a one-time event in '11/'12 when all this oil had no place to go. I do not expect that to happen again and I would use crack spreads and gross margin assumptions from back when you first bought as a baseline for analysis.

     

    Glad to hear about your lifestyle (e.g., leave it to beaver)...for some reason, I can't get my wife put on high-heels and welcome me home with a martini.
    8 Nov 2013, 04:01 PM Reply Like
  • taxman100
    , contributor
    Comments (329) | Send Message
     
    Well, I don't get the best parts of Ward's life, but at least I'm not Dan Conner and "Rosanne".

     

    I'd just live at the office then.
    10 Nov 2013, 09:43 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2732) | Send Message
     
    Just food for thought, but wouldnt it make more sense to want to focus on refiners on the coasts, since exports to South America and the EU are cheaper from there? The inland refiners scare me a little bit. Agree about NTI with the one refinery thing being a little too much risk concentration for me.
    8 Nov 2013, 03:34 PM Reply Like
  • jolacious
    , contributor
    Comments (96) | Send Message
     
    @MikeMaher. I took a position in NTI several months ago. What tempted me was the dividends and the potential upside, due to the falling price of oil. In addition, if they can expand their retail outlets, the stock has potential upside. I know they only have the ST Pauls refinery and any disaster can affect production (like the recent fire) I am prepared to hold for now. I am now looking for a midstream with potential. Do you think Mark West still has upside? Similarly, what do you think of OneOk? ATB.
    10 Nov 2013, 09:49 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2732) | Send Message
     
    I own MWE, and wish I had more. MarkWest's in the catbirds seat in the Marcellus/Utica, since they have a 2 or 3 year headstart on building out processing plants there. Longer term I think MWE has the chance to turn into one of the premier midstream companies in the US - unfortunately Im not the only one, and the units are somewhat expensive. Id look for an offering, which always come along eventually, to pick up some MWE. As of OneOk, I dont own them, but do remember seeing it pop a few months back on a restructuring (I think) between the GP and MLP. I dont really like the gas utility business, so based on not being that up to speed on OneOk I don't really have an opinion one way or the other. I have been looking at SE a lot in the last couple weeks, i've just been wishing itd go back under $30 for a couple minutes for me to pick some up.
    10 Nov 2013, 10:13 PM Reply Like
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