- U.S. shale oil output is surging but "the U.S. refining system is close to being maxed-out on the amount of shale oil it can process," but Morgan Stanley says some energy stocks should benefit.
- Stanley also sees limited export opportunities for U.S. shale, all of which means light oil may soon trade at a discount to compete overseas - and that's good news for some refiners that process light crude, such as Delek US (DK +1.2%), HollyFrontier (HFC +1.3%) and Andeavor (ANDV +1.8%).
- Canadian oil sands producers, which blend their heavy crude with lighter grades, also should reap rewards from discounted U.S. light oil; Stanley says Cenovus Energy (CVE -1.3%) and MEG Energy (OTCPK:MEGEF +1.6%) have the most exposure to light oil prices.
- The firm likes Continental Resources (CLR +0.6%), Oasis Petroleum (OAS +3.2%) and Whiting Petroleum (WLL +0.4%) as drillers of North Dakota's Bakken shale that produce crude that's better suited to making middle distillates, and it also favors drillers with more transportation options that make it easier to export, including Encana (ECA +1.3%), Occidental Petroleum (OXY +0.5%) and Pioneer Natural Resources (PXD +1.7%)
- CLR "straddles both of these buckets and is therefore our most preferred way to retain exposure to the positives of U.S. shale while minimizing the risk associated with a potential oversupply of ultra-light crudes," Stanley says.
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Earlier: Delek US big winner from Permian Basin bottlenecks, Tudor Pickering says (April 16)