- Few energy plays have held up as well of late as U.S. refiners such as Valero (NYSE:VLO), Tesoro (TSO) and Marathon Petroleum (NYSE:MPC), and Barclays analysts see more strength ahead for the group.
- For a refiner the price of oil is an input, so cheaper oil cuts its costs, and U.S. refiners generally do better when the price difference between U.S. crude and international benchmarks is widening - and that’s exactly what Barclays believes will happen.
- Brent-LLS and Brent-WTI Cushing spreads have tightened significantly in recent weeks, but the firm thinks the differentials are unsustainable; storage capacity at Cushing and the Gulf coast will inhibit the ability to store excess barrels indefinitely, and the upcoming turnaround season should expedite the speed at which Cushing and Gulf coast inventory meets maximum storage capacity, eventually forcing differentials to re-widen and begin to reflect transportation costs.
- In conclusion, Barclays believes U.S. independent refiners will benefit from the re-widening of North American differentials in the coming months.