Refining stocks are lower as HollyFrontier (HFC -0.7%) is hit with a downgrade from Imperial Capital, which dropped its rating to In-Line from Outperform, reduces its price target to $41 from $49, and cuts its 2013 EPS estimate to $3.83 from $4.83 and 2014 EPS estimate to $3.50 from $4.00.
The firm sees continued contraction in refining margins and crude price differentials, especially as the southern leg of the Keystone XL pipeline commences operation later this month.
Refiners (PXE, RYE, IOIL) are broadly underperforming the rest of the energy sector today after a Simmons downgrade to Neutral from Overweight, expecting continuing challenges to EPS and refining margins in Q3 and into 2014 after a dismal Q2.
Individual stocks lowered by the firm: Marathon Petroleum (MPC -1.5%), Tesoro (TSO -0.6%), Delek US (DK -1.3%), Alon USA (ALJ -0.5%), CVR Energy (CVI -1.8%), CVR Partners (CVRR -1.2%).
HollyFrontier (HFC -1.8%) breaks down to fresh multi-week lows after a downgrade from Morgan Stanley.
Also, Barclays says at its Energy-Power conference that it believes most refiners will miss current consensus expectations by a wide margin, with Valero (VLO +0.7%) the exception (Briefing.com).
"The real problem for small inland North American oil refiners is that the improvements to continental oil distribution networks are cutting away their advantage on feedstock prices," Reuters says, in an attempt to explain ACON and TPG's partial sale of their controlling stake in the general partner of Northern Tier Energy (NTI -2.2%).
Because NTI is "well-positioned to profit from anticipated dislocations in North American oil prices," speculation is that the private-equity divestiture says something about how likely such dislocations are to return and how tough the fight will be going forward for small, inland oil refineries if they do not.
Other inland refiners: CVI -2.3%, WNR -0.4%, HFC -1.1%
More on inland refiners and the Brent-WTI spread here.
"The spread is dead," Global Hunter proclaims, as WTI crude (USO) rises above Brent (BNO) for the first time in nearly three years two days after the EIA reported a third consecutive weekly supply decline. Some analysts say a WTI premium may be here to stay, supported by a relatively better outlook for the U.S. economy and falling stockpiles. Brent meanwhile, may struggle amid receding geopolitical risks and global macroeconomic weakness. Refiners: ALDW -0.34%, CVI -0.22%, TSO +1.64%, HFC + 3.29%, MPC +1.32%, NTI -0.41%, DK +3.36%.
Valero Energy (VLO -1%) sees its numbers cut at Imperial Capital on the heels of the company's Q2 update. Analyst Ann Kohler lowers FY13 and FY14 EPS estimates to $4.24 and $5.28 respectively and reduces the price target on the shares to $38 from $44. Other refiners under a bit of pressure today: TSO -1.3%, WNR -1.06%, CVI -2.12%. Gulf Oil CEO Joseph Petrowski earlier predicted $50/ bbl oil by the end of 2013 but said refiners will be alright despite "some margin pressure."
Valero Energy (VLO +3.8%) has recouped early losses following a disappointing Q2 update and is making new highs for the day, as downside guidance apparently was priced in. Most refining peers also are higher: ALJ +3.7%, WNR +3.6%, HFC +3.5%, TSO +3.2%, CVI +2.9%, ALDW +2.6%, MPC +2.6%, PSX +2.5%, DK +1.8%, CVRR +1.7%, NTI +1.7%.
Refiners are oversold, Tudor Pickering says, after margins have been squeezed as WTI prices climb much faster than Brent. As North American supply growth continues, the spread will widen and support refiners' stocks, the firm says; with refiners off 20%-40% from their peaks, believers in North American crude supply growth should be buying here. CVI +6.3%, HFC +4.7%, PSX +2.9%, TSO +2.5%, VLO +1.9%.
WTI crude settled well above $101/bbl, cutting the premium of North Sea Brent to barely $3 and continuing to hit U.S. inland refiners that had thrived on ~$20 premiums for much of 2012. "Stay away from these stocks until we know in the next 3-4 weeks whether this trend is temporary," Oppenheimer's Fadel Gheit advises. Since May 1: HFC -16%, WNR -13%, CVI -8%, MPC -6%.