More on Citigroup's take on oil refiners: The firm expects to see a bottoming of earnings in Q4 for most names, but companies overweight the Midcontinent and/or Midwest could experience a difficult earnings environment through Q1 2014.
The diverging earnings performance will result in positive price appreciation for some refiners - such as Valero (VLO) and Tesoro (TSO), which earn upgrades to Buy - but underperformance for others, such as on Alon USA (ALDW), CVR Refining (CVRR), Holly Frontier (HFC) and PBF Energy (PBF), which will remain pressured by narrowing price differences between WTI and Brent crude.
TSO will benefit next year from a tighter gasoline market in California, and VLO will benefit from wider heavy-light differentials in H2 2014 as increased Canadian heavy crude flows to the U.S. Gulf coast, Citi says (earlier: I, II).
It's a pretty good day for refiners, even as most energy stocks slip, as Phillips 66 (PSX +2.1%), Valero (VLO +1.2%), Tesoro (TSO +0.2%), Western Refining (WNR +1.2%), Marathon Petroleum (MPC +1.2%) and HollyFrontier (HFC +0.4%) all post gains.
The firm sees a potential entry point around October/November, but a Q3 round of earnings downgrades likely will bring lower equity prices; it's better to wait, "as global oil markets have become weakened by super-high oil prices and demand may be too damaged to allow for a strong winter for refining."
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.
HollyFrontier (HFC) Q2 earnings fell 48% as refinery margins narrowed amid lower production, but says the proximity of its refineries to U.S. crude-producing regions would keep refining margins healthy.
Refinery gross margin dropped 28% to $20.28/bbl from $27.43 a year ago.
Planned and unplanned maintenance at its Tulsa, El Dorado and Cheyenne refineries contributed to lower production.
Declares a special dividend of $0.50/share in addition to the regular $0.30 quarterly dividend.
The EPA formally tells refiners to blend 16.55B gallons of renewable fuels to blend into the U.S. gasoline supply this year, and pares some targets the oil industry had criticized as too ambitious.
Refiners must blend 1.28B gal. of biomass-based diesel and 2.75B gal. of advanced biofuels this year, along with 6M gal. of cellulosic biofuels made from non-edible plant parts - far less than the 14M target the EPA proposed in February but short of the oil industry’s push for the category to be zeroed out completely.
After some initial reaction, most related stocks have returned to pre-announcement levels: PBF +8.6%, VLO +3.3%, HFC +2%, BIOF +1.8%, PEIX -4%, GPRE -3.2%, REX -6.6%, SYNM -4.3%, REGI -0.3%.
"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%.
HollyFrontier's (HFC +0.5%) price target is cut to $49 from $59 at Imperial Capital, though the team maintains its Outperform rating. The move comes as Imperial lowers its Q2 EPS forecast to $1.50 from $1.68 (report is on Aug. 7), thanks to unplanned downtime at certain refineries. The share prices of independent refiners are likely to remain under pressure for the next several weeks as analysts digest Q2 reports and rejigger estimates for 2013-14, says Imperial.
The recent strength in WTI crude prices reflects new pipelines, not new demand, so expect the surge to be short-lived, Liam Denning writes. For investors, he sees an opportunity in U.S. refiners such as Valero (VLO +3.4%), HollyFrontier (HFC +1.7%) and Phillips 66 (PSX +2.2%), whose stocks have sold off as the Brent-WTI gap has closed, but expects that to reverse as WTI's bid for equality gets caught in a new bottleneck.
DAG1996+ FollowFollowing- Unfollow|Send Message9 Dec 2013
: Excellent, thanks. I had CNBC on in the background at the time so not sure how i missed that ... too far "in the background" I suppose.
HFC vs. ETF Alternatives
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.