It's not just oil exports wearing on refiners, Credit Suisse says

Refiners are lower again today after a slight bounce yesterday, as investors resume wariness over the U.S. government's move to allow exports of ultra-light crude oil.

But Credit Suisse analysts say there’s more to the drop in refiners: U.S. refining is still linked to the world, there is overcapacity in global refining and the risk premium in the oil price is rising, and this week the market was reminded that the lightest barrels (condensate) in U.S. production can be exported (via distillation towers) at relatively low cost, creating more runway for black oil.

The firm downgrades Holly Frontier (HFC -2.5%), and says Tesoro (TSO -0.7%) needs to beat convincingly in 2Q earnings... to drive further relative upside”; however, Marathon Petroleum (MPC -1.7%) "is becoming significantly more interesting after underperforming,” while it sees most potential in niche refiners such as Delek US (DK -3.4%) and Western Refining (WNR -0.9%).

Also: VLO -1.1%, ALJ -2.5%, PSX -0.7%, PBF -3.5%, CVI +0.4%, CLMT +1.5%.

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Comments (17)
  • PalmDesertRat
    , contributor
    Comments (3861) | Send Message
    Hope they're right about MPC. added some on Wednesday at 79.46
    27 Jun 2014, 04:26 PM Reply Like
  • mttmartin
    , contributor
    Comments (360) | Send Message
    That is what I paid today. You don't have to worry about Marathon. The hedge funds love that stock at current prices. This is quality. I have owned Marathon Oil for nine years now. A top four oil company in America.
    27 Jun 2014, 07:49 PM Reply Like
  • mapodga
    , contributor
    Comments (7704) | Send Message
    Credit Swisse !?! This could be something :)
    Whenever I met their analysis latelly it is sign that they wan't to push down price to buy by themself.


    Overcapacity in the world, they said. Well, with all this overcapacity that is not new thing we have prices that we have and the profits of rafineris that we have.


    Currently very high becouse price of oil and oil products is high. In 1Q profits of VLO, CLMT, CVRR, were very high and dividends also. And now will be only higher.
    27 Jun 2014, 05:51 PM Reply Like
    , contributor
    Comments (6850) | Send Message
    mapdga- or anyone-
    Please explain how refiner profits can hold or go up, rather than down.
    thanks- G
    27 Jun 2014, 08:42 PM Reply Like
  • mapodga
    , contributor
    Comments (7704) | Send Message
    As I see refinery profits for refiners are in average connected to 2 major factors (individually refinery can also have some specific issues).


    1. The level of world oil prices. It is so, that all contributors in line from the oilfield to car has its stake. The bigger is price levels the bigger are their stakes. You can check, if you observe the correlation between oil prices and refinery profits (and also others transport, exploration, rigs) through time.


    2. The level if growth in crucial world market, that create the market consumption. This correlate to demands that generate bigger or smaller production.


    Currently prices of oil are relatively high and will go even higher as we have this risks and problems in Russia/Ukraine, Iraq, Libya, Venezuela... The situations on supply side is not good and can easlly become critical.
    On the other hand China has growth again and also other emerging markets will need substantially more petrol products in following years.


    So all together the situation for refinery from the aspect of fee levels and
    Production quantities are improved in last year and trend is upward. You can check by yourself, how their profit levels grow. Currently are almost most profitable sector (P/E in majority between 5 and 10%)
    28 Jun 2014, 01:08 PM Reply Like
  • Ruffdog
    , contributor
    Comments (3769) | Send Message
    As I see it the only parameter that matters to their earnings is the difference between WTI and Gasoline. The bigger the spread the higher the earnings. Currently WTI=105, RBOB=3.08. Sorry for consumers!
    30 Jun 2014, 08:40 AM Reply Like
  • mttmartin
    , contributor
    Comments (360) | Send Message
    I bought 200 shares of Marathon Petroleum today. I am building a position of possibly 700 shares or more. They bought most if not all of Hess retail convenience stores. They own Speedway. I have traded in and out of this four times in the last few years. This is the best refiner and is very cheap now. I have owned Valero for nine years. Marathon is a no brainer in comparison to Delek and Western as well.
    27 Jun 2014, 07:44 PM Reply Like
  • stever10
    , contributor
    Comments (126) | Send Message
    Good plan, lets export or oil out of the country so that it can be refined and brought back in as gasoline or diesel and then the consumer gets to pay higher prices for. Refine it here and create American jobs and then if there is extra export that amount.
    27 Jun 2014, 09:35 PM Reply Like
  • mapodga
    , contributor
    Comments (7704) | Send Message
    Stever :)


    At least somebody that understand the whole picture:


    1. Potential of oil distillates export from US is far far to small to influence seriously any world price level.


    2. Because the price of light oil is lower around of the world then is it in US this exporters will earn probably more.


    3. Since the US prices of gasoline are lower then competitive market alternatives around the world and prices are not regulated the refiners will retain fee that have and just ask for higher prices (in cases when control the financial structure)


    4. Because cheaper oil won't be available, the price of final product will grow up. It can go to the level if world prices and American consumer can't do anything against that. Except phone to the congressman to do something.... Politically...


    So summarized, producers will earn more and US citizen will pay more, the rest will be the same. We could say that this was real conservative agenda, from current US "Socialistic" government :)
    28 Jun 2014, 01:10 PM Reply Like
  • User 3950401
    , contributor
    Comments (556) | Send Message
    stever10 - if only the Harvard/Yale/etc. educated conservative individuals who are on the boards of all those companies would share your view, unemployment would drop in this country to below 5% within years. However, the mantra of 'capitalism' (the decadent/ignorant kind) is to ship manufacturing (refining) overseas and sell it at a much 'greater profit' here. Of course, the American people are now figuring out that things are not quite right, and are just starting to realize a life without cheap credit and all things associated with that. It was "group think" that started the manufacturing exodus to China, and now, hopefully, "group think" will start the return of manufacturing to the US, and the keeping of refineries here as well. However, one of the few things I've learned from history - when big business is barking about something, it is in their own self interest and they have no interest in 'creating American jobs..."


    good investing!
    30 Jun 2014, 08:33 AM Reply Like
  • Hank890
    , contributor
    Comments (2338) | Send Message
    New Refinery building in the US has been held up by increasingly stringent EPA policies for more than a decade. Lack of labor productivity in refineries is really not the issue, as jsij suggests. US firms want to build more refining capacity in the US; but are obstructed. Ideological NIMBY whining by a tiny minority stops construction, and firms need to approach politicians to try to break the logjam, if they want to proceed. Of course, the politician has his hand out, naturally. Often the simplest and least cost alternative for the firm is to build incremental capacity outside the US. Better that than pay off the demagogue politician.
    30 Jun 2014, 12:18 PM Reply Like
  • stockpicker99
    , contributor
    Comments (105) | Send Message
    Which one is better MPC or VLO?
    28 Jun 2014, 07:28 AM Reply Like
  • mttmartin
    , contributor
    Comments (360) | Send Message
    Valero is cheap, but Marathon is even cheaper right now. Based on what you are getting. If you are getting into these stocks you have to be patient. They are very volatile. They will be a lot higher in a year or two, maybe sooner.
    28 Jun 2014, 10:39 AM Reply Like
  • mapodga
    , contributor
    Comments (7704) | Send Message
    They are both good stocks now. At this levels Better then 80% others on NYSE and Nasdaq.
    28 Jun 2014, 01:11 PM Reply Like
  • newbiempc
    , contributor
    Comments (2) | Send Message
    What are your thoughts long term with MPC? dividend growth outlook over the next 3-8 years? Considering this stock to add as part of my dividend growth portfolio to compliment my blue chippers.
    28 Jun 2014, 02:59 PM Reply Like
  • mttmartin
    , contributor
    Comments (360) | Send Message
    If you are talking years, you can buy Marathon anytime. But remember, it is very volatile. You can buy this for the dividend, but is not typically bought for that reason. I get a lot of dividend portfolios in email alerts, and not one has MPC in it. Or any of the refiners. Typically, you have staples,utilities,and MLP pipelines. You might have Chevron,Exxon, Shell, and Conoco Phillips. You buy Marathon Petroleum for capital growth. I buy it when it is around the price it is now, sell it around 85-90. However, I have been lucky. Just hold it ,if you have years and not a market timer.
    29 Jun 2014, 04:06 PM Reply Like
    , contributor
    Comments (36) | Send Message
    It probably seems absurd that for one who really doesn't know where this is all leading to suggest that the "EXPERTS" probably do not know either. When HFC stops paying that extra dividend, unless it is combined with an increase in the regular dividend, then we will know mgmt. believes it is time to pull in their horns. However, I do tend to agree that Government in the short-run has an overwhelming capacity to screw things up.
    28 Jun 2014, 03:32 PM Reply Like
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