“We don’t think the current system needs to be changed,” Valero Energy tells Bloomberg.
Yesterday's rulings gave Pioneer Natural Resources (PXD +2.6%) and Enterprise Products Partners (EPD +1.4%) permission to ship ultralight oil to foreign buyers - a narrow ruling, but one that is likely to spark similar requests from other companies, and increase lobbying for a full lifting of the 40-year-old ban on exporting crude oil.
Stocks at the Cushing, Okla., hub have dropped by 16M barrels since late January but have jumped by 43M on the Gulf coast; overall, U.S. commercial crude oil inventories now stand at their highest level on record, according to Barclays.
With the oil stuck there with nowhere to go, Gulf coast refiners can name their price - great for the likes of Valero Energy (VLO +1.9%), because they can then refine that oil into products such as gasoline that are allowable for export.
A subsidiary of HFC is entering into a long term lease with NuStar GP Holdings (NSH) unit NuStar Logistics for the Port of Catoosa asphalt terminal, enabling HFC to begin supplying polymer modified and PG asphalts to the mid-continent market.
Pain for investors in refiners such as Valero (VLO), Tesoro (TSO), Phillips 66 (PSX), HollyFrontier (HFC) and Marathon Petroleum (MPC) may be ready to turn into gain, Barclays says as it sees the U.S. refining segment among the market’s best-performing groups over the next year or two.
The firm thinks the narrow LLS-Brent differential during the past two months mostly has been due to poor weather affecting both production and the logistics necessary to transport the production to refineries.
Barclays believes investors should overweight the entire U.S. refining industry, but particularly favors VLO, which is "best positioned to take advantage of the changing Gulf Coast crude oil landscape,” and TSO, when “investors start to shift their focus to relative underperformers within the refining sector.”
Energy Secretary Ernest Moniz said at the CERAWeek conference this week that the oil industry has failed to make a convincing case for why the U.S. government should allow the export of domestic oil when the U.S. still imports 5M bbl/day.
The statement should please America's refiners, who have enjoyed increased profits from buying U.S. oil on the cheap to produce products such as gasoline.
At the same time, Moniz went further than before in suggesting the Obama administration could redo the economic analysis that underpins its decisions on exporting American natural gas.
Moniz also dismissed speculation that the Obama administration has in mind a hard cap on possible natural gas exports.
Given Ukraine’s location, the country's situation obviously will impact Brent more than WTI; meanwhile, WTI’s losses are limited after U.S. government data yesterday showed crude supplies at Cushing, Okla., declining to a four-month low.
Phillips 66 (PSX -2.8%) has dropped 3.5% YTD, while Delek US (DK -5.3%) has plunged 17%, Valero (VLO -4.3%) has slipped 3.8%, Holly Frontier (HFC -3.1%) has fallen 8.2% and Marathon Petroleum (MPC -4.4%) is off 8.5% in 2014.
Aside from general seasonality, the firm says it’s tough to paint a bullish picture for gasoline/diesel cracks amid the continued upward creep in global refining capacity; also, valuations are sitting near the top end of the historical range after the recent run-up in the sector.
The firm sees little in the way of near-term catalysts to drive the next leg up in refining stocks during the historically weaker summer months.
As a result, the firm cuts its ratings for Valero Energy (VLO -0.1%) to Outperform from Strong Buy, and Holly Frontier (HFC -1.3%), Delek US (DK -4.3%) and PBF Energy (PBF -0.8%) to Market Perform from Outperform; only “defensive, insulated” Phillips 66 (PSX -0.3%) gets an upgrade, to Outperform from Market Perform.
HollyFrontier (HFC +0.3%) is downgraded to Sell from Neutral at Citigroup based on valuation; the firm's price target remains $40.
Citi points to Wider Group 3 and Rockies Basis as potential headwinds: “HFC serves these regions where the seasonality in product prices between winter and summer months has been more pronounced. Some of this is a result of more Gulf Coast products migrating into the Mid-continent as a result of higher utilization rates and limited export outlets for gasoline.”
The energy sector - especially refiners - leads the stock market higher today even as crude oil trades lower, with Phillips 66 (PSX +3.2%) contributing to the strength after Berkshire Hathaway agreed to acquire its flow improver business (I, II).
HollyFrontier Corp is an independent petroleum refiner. It produces high-value light products such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. It operates in two segments; Refining and HEP.