Seeking Alpha

Refiners continue to rise as Brent-WTI spread widens

  • Refiners such as Marathon Petroleum (MPC +4.9%) and Valero (VLO +4%) are surging today, and Barron's Ben Levisohn says it’s all about the oil spread.
  • While Brent crude has stayed steady for the last three months, trading at ~$109/bbl, WTI has dropped 12% to ~$94; the more expensive Brent is relative to WTI, the better it is for U.S. refiners.
  • VLO, for example, has gained 17% during the past three months, and much of its price has followed the Brent-WTI spread.
  • Also: PSX +2.1%, TSO +2.7%, HFC +3.2%, WNR +4.3%, ALJ +5.2%, ALDW +1.3%, CLMT +2.6%, CVI +1.3%.
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Comments (13)
  • Rollo Tomasi
    , contributor
    Comments (259) | Send Message
     
    Gotta love it. Go cvr!
    14 Nov 2013, 02:54 PM Reply Like
  • Chris Damas
    , contributor
    Comments (1403) | Send Message
     
    Unfortunately the Barrons article is wrong as the WTI/Brent spread is no longer a good proxy for Gulf Coast or even East Coast oil refiner profitability. It's the WTI/LLS and refined product crack spreads.

     

    Think about it. Why would the spread between WTI and Brent really matter? US oil refiners don't use Brent anymore. And they sell refined products not related to Brent. Now that light sweet oil imports have been virtually backed out of the Gulf from domestic production, the LLS (Lousiana Light Sweet) blend is trading at a discount to dated Brent. PBF on the East Coast is sourcing more Bakken and WCS crude, not Brent.

     

    It's a much narrower differential for Mid-Con producers and the approrpriate one.
    The other ones of course are the local domestic diffs or the sour diffs such as Bakken/WTI and WCS/ASCI.

     

    No matter your differential is below WTI, if your lcocal refined products are trading at a discounted basis to NY Harbor or Chicago (called the basis) you aren't getting a very good crack spread even if your oil is bought at a discount to coastal varieties or Cushing or Midland or Alaskan Northern Slope (http://bit.ly/19nUHf2) for that matter.

     

    WTI/LLS, which is the GOM coastal sweel oil grade, is now setting the tone for the biggest refining area - PADD 3.

     

    High Brent prices are only useful as a sign that European refiners are hurting and are shutting down, leading to more US refined exports to the Old World.
    14 Nov 2013, 03:25 PM Reply Like
  • Deja Vu
    , contributor
    Comments (1582) | Send Message
     
    Excellent comment. You just got a new follower.
    14 Nov 2013, 03:52 PM Reply Like
  • Continental Kid
    , contributor
    Comments (231) | Send Message
     
    The reason the spread is still important is because it is illegal to export oil from the US....however refined products can be shipped ....and these gulf refineries are shipping to the Caribbean and South America...and thus they can charge the brent price to the world market.....even though the feed supply is much cheaper

     

    The shales are going to revolutionize this process....Brazil tried to build a government/semi private refinery and found the cost starting from scratch...for land...pipe...ports...... cost well over 10 billion dollars and scrapped the plan...

     

    best of luck....long VLO and PSX
    14 Nov 2013, 10:50 PM Reply Like
  • Chris Damas
    , contributor
    Comments (1403) | Send Message
     
    Refined product exports are still small as a portion of US production and largely available to coastal refineries (e.g. on the Gulf of Mexico). Gasoline in particularly is far from being cleared by the "Brent" price, and it isn't clear what the prices are in Mexico or South America - quite often local prices are subsidized and lower.

     

    US finished gasoline exports were running at 380K bbl/day in the most recent week versus 9.0 million bbl/d product supplied nationwide. Valero shipped only 91K per day gasoline in Q3. GOM gasoline is virtually in a glut situation and refiners are trying to boost diesel versus gasoline heavy crude usage.

     

    Distillate (diesel primarily) was somwehat better at 1.356M export out of 3.790M supplied and export prices theoretically could be pushing GOM diesel prices slightly higher than they otherwise would be. This has little impact on a refinery somewhere in PADD 2 though.

     

    US refined product exports are not the price determinant for gasoline which is the biggest refined product, and certainly have little impact on inland price bases.
    15 Nov 2013, 07:00 AM Reply Like
  • nved47
    , contributor
    Comments (14) | Send Message
     
    Appreciate your comments,it's very helpful to hear info from someone with your knowlegde.What are your thoughts on PSX over the next year.
    15 Nov 2013, 10:34 AM Reply Like
  • Chris Damas
    , contributor
    Comments (1403) | Send Message
     
    I was impressed by their chemical earnings in the Q3 but there are other authors on this site that cover PSX more than I do. MPC and VLO are my core positions. However, I am lightening up on oil refineries.

     

    Note: I am usually early and a Santa Claus rally could push up the oil refineries even more, as they were hammered over the summer and early fall.
    15 Nov 2013, 11:11 AM Reply Like
  • bleepingjelly
    , contributor
    Comments (571) | Send Message
     
    Chris...you're spot on. I sold CVRR at $25.00 and $22.10 respectively. I am looking at HFC.

     

    What are your thoughts?
    14 Nov 2013, 06:43 PM Reply Like
  • Chris Damas
    , contributor
    Comments (1403) | Send Message
     
    Really old iron at Tulsa. Navajo reduced production unexpectedly just a few days ago.

     

    http://bit.ly/1dvJnSo

     

    I liked it at the beginning of the year. Great dividend payouts. Especially like the Rockies refineries in Utah and Wyoming. But who knows when the iron is going to fail again?

     

    In that production range I prefer PBF which seems to have upside with crude by rail.
    14 Nov 2013, 07:03 PM Reply Like
  • shawnaraghi
    , contributor
    Comments (24) | Send Message
     
    What about DK?
    14 Nov 2013, 11:37 PM Reply Like
  • nved47
    , contributor
    Comments (14) | Send Message
     
    great article What are your thoughts on PBX
    15 Nov 2013, 10:55 AM Reply Like
  • Chris Damas
    , contributor
    Comments (1403) | Send Message
     
    You mean PBF?

     

    I like it. I sold some at $28.95 today though. It tends to fade in the afternoon. It's probably going over $30.

     

    DK - Drift Kids? Sorry Delek LOL...I don't follow Delek much and I think Tyler is going to be down next month? My comments hold for all these one or two refinery MLP's or stocks. Watch out for that old iron. But if everyone thinks WNR is going to roll into an MLP via NTI, maybe they'll catch the "drift" over at DK....

     

    PBF is about as small as I am going from now on.
    15 Nov 2013, 11:09 AM Reply Like
  • bigbenorr
    , contributor
    Comments (891) | Send Message
     
    Does anyone know if the Cushing-Gulf Coast section of Keystone XL is operating yet? What effect do yall think it will have on the spread, if any?
    23 Nov 2013, 10:47 AM Reply Like
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