Timothy Stolz

As Oil Slides, Will Contrarians Turn to Refiners?

One would think that you could short oil and play the long position on oil refiners at the same time. This past week, Sunoco Inc (SUN) went up by 14.07%, Holly Corp (HOC) by 12.32%, Valero Energy (VLO) by 11.94%, Frontier Oil (FTO) by 12.93% and Alon USA (ALJ) by 5.00% while crude oil went down by -5.70%.
My hunch is that we can rely on the American consumer to soon return to some of their previous wasteful driving habits and keep the demand for refined crude oil products high. That would bode well for this group of stocks, easing the conservation effect that demand destruction was beginning to provide, unfortunate as that may be.
We are likely to see crude oil level off and hold somewhere around $110 a barrel and that support level could hold into early fall, providing the refiners ample time to stockpile crude oil inventories and/or future contracts to meet their needs for some time to come. That would further stabilize this industry past the near future.
I'm going with Chad on this call....that contrarians will turn to oil refiners and I believe that they began to do so about a week ago.