Seeking Alpha

Oil collapse fears could drive refiners higher, Howard Weil says

  • A potential collapse this year in domestic crude prices could push refiners higher, including Phillips 66 (PSX -0.3%) and PBF Energy (PBF +0.7%), Howard Weil says.
  • "From a global perspective, macro [refining & marketing] dynamics are improving into ’14 with significant crude supply growth placing a theoretical ceiling on oil prices/feedstock costs while underlying demand growth remains intact, thereby supporting product prices," the firm writes.
  • However, the firm endorses a slight tactical shift toward more defensive posturing with a focus on lower beta names and companies that screen at a discount from a valuation perspective, thus it cuts Delek US (DK -3.4%) and Tesoro (TSO -2%) to Sector Perform and raises PSX and PBF to Sector Outperform.
  • Noble Energy (NBL -0.2%), Whiting Petroleum (WLL -0.2%) and Concho Resources (CXO -1.3%) are upgraded to Focus Stock.
Comments (5)
  • I think everyone is getting a bit to sanguine about the Middle East. The situation in Iraq is apparently deteriorating, who knows who runs what in Libya, Iran may or may not strike a deal with the West but they won't be exporting in volume for a while and the Saudi response is uncertain if and when they do. Iran and Saudi Arabia are having a proxy war in Syria where the outcome is unclear and could disprupt things even further no matter who comes out on top in the short term.
    8 Jan, 03:29 PM Reply Like
  • Yes, and the extreme weather in the North Sea and Bakken could also affect production. COP recently cut its Q4 guidance, although full-year 2014 guidance remains unchanged.
    8 Jan, 03:38 PM Reply Like
  • Lower oil prices would be good for all consumers of energy, not just the refiners. Airlines, people who drive cars, etc.

     

    If crude prices do collapse, I believe it would only be temporary. Fracking is not cheap, so a significant drop in price would put pressure on e&p's. Exploration would decline, some cos would go out of business.

     

    It would be a good time to load up on stronger producers,as demand has a habit of increasing in response to falling prices.
    8 Jan, 03:59 PM Reply Like
  • Following up on PalmDesertRat's comments -- supply and demand will come into balance at lower prices. The key metric here is the distribution of marginal costs at various producers properties. High cost wells will be shut in if they become uneconomical;consequen... pressuring high cost producers.
    8 Jan, 05:24 PM Reply Like
  • I'm wondering if this is taking a toll on OPEC. They have been EXTREMELY quiet these past 6-12 months and beginning to think many are going off in their own direction in what they are producing. I look at the escalation in many countries in the Middle East and wonder if places like Saudi Arabia are bringing more to the market than what many think.
    8 Jan, 06:58 PM Reply Like
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