U.S. crude oil climbs 3.2% to $52.45/bbl after EIA data showed that refiners processed a record amount of crude and that supplies fell at the Cushing, Okla., storage hub.
U.S. refiners churned 17.1M bbl/day of crude into fuel last week, the highest weekly figure going back to 1982, while Cushing stockpiles, which have been rising in recent weeks, fell by 579K barrels.
Prices recovered after initially falling in reaction to a higher than expected rise in total crude oil inventories to 4.1M barrels, and U.S. production jumped to more than 8.9M bbl/day during the week, the highest read since April.
But analysts say the stockpile gains largely were driven by an increase in oil imports, which rose to their highest level since 2012 as shipments of crude that were delayed at the end of last year for tax purposes are starting to appear.
Valero Energy (VLO -3.6%) is sharply lower after Deutsche Bank downgrades shares to Hold from Buy with a $65 price target, while HollyFrontier (HFC +2.2%) is higher following the firm's upgrade to Buy from Hold with a $38 target, raised from $30.
Deutsche Bank says VLO remains a fundamentally strong operator with sustainably strong capture rates, but shares are fully valued current levels, trading at a historically premium 7.1x forward EBITDA, which would more than fully price in a full repeal of RINs expenses and corporate tax reform, two major tailwinds for the refinery sector in 2017.
On HFC, the firm sees attractive leverage to key themes for the group. including RINs relief, corporate tax cuts, widening of narrow inland differentials and limited exposure to potential import/export border tax adjustments.
Refiners are mostly lower in today's trade: TSO -3.2%, PSX +0.7%, MPC -2.7%, WNR -3.2%, PBF -4.9%, CVI +0.2%.
With margins high, many refiners have delayed routine work over the past couple of years to run flat out, but now pipe fitters and ironworkers are in short supply amid a glut of billion-dollar projects, including liquefied natural gas export terminals from Cheniere (NYSEMKT:LNG) and a new petrochemical unit for Dow (NYSE:DOW).
U.S. refiners are expecting to spend $1.26B on planned maintenance next year, a 38% increase and the highest level since at least 2010, according to IIR -- but IIR also expects the Gulf Coast region to be short about 37,400 craftsmen needed to complete all the planned projects.
CVR Energy (CVI +14.3%) and CVR Refining (CVRR +8.9%) are surging following Pres.-elect Trump's reported appointment of Oklahoma AG Scott Pruitt as the next EPA chief, a decision which may have been influenced by CVR stakeholder Carl Icahn.
A weekend WSJ article said Icahn, who holds a controlling stake in CVI, has interviewed several candidates for the position.
Additionally, J.P. Morgan upgrades CVRR to Overweight from Neutral.