jwaydog

Tesoro: An Aggressive Way to Play a Short Term Oil Pullback

Everyone keeps wishfully hoping that decreasing oil prices will fix profitability issues for the likes of TSO. Most likely a short term pullback in oil means $115 to $125 per barrel. When you consider the relative weakness of gasoline demand, the crack spread is still not that great. One must factor in the increase in operating costs for the refineries in 2008 (which negates a couple of dollars of improved crack spread). Furthermore, TSO has yet to earn a profit on their forays into the retail segment. Debt to equity ratio of .702 in a low margin business with rising input and operating costs and waning demand for the finished product do not indicate a buy. As if this was not enough, we are entering hurricane season (just a hint of a big storm will send oil prices spewing higher). TSO's best hope is a takeover. Tuesday I bought July 22.50 puts on TSO for a song. So far so good.