Refining margins continue rally, as policy supports higher prices near term

Jun. 21, 2022 9:53 AM ETDINO, PSX, MPC, VLO, XOM, BP, CVX, SHEL, XLEBy: SA News Team27 Comments

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  • US refining margins continue to march higher, as the ongoing supply crisis is compounded by talks of stimulating demand and cutting exports:
  • Weekly reports from the Department of Energy have shown gasoline demand has struggled to surpass 2021 levels in the US; however, cutting the federal gasoline tax could further stimulate demand and tighten oil product markets (VLO) (MPC).
  • Additionally, the administration has weighed the idea of capping US oil product exports; while such a move would no doubt reduce refining margins in the US, the threat is likely to bring increased foreign purchases until the point at which the ban is implemented (DINO) (PSX).
  • As it stands, refining capacity is in short supply outside of China and Russia; as a result, margins reflect the fact that product is going to the highest bidder globally:
  • For energy investors (XLE), discussion of price caps, export quotas, gouging, tax changes and reserve releases have all made for a challenging environment; with policy set to create "winners" and "losers" in coming months, it's likely more important than ever to diversify between upstream, downstream and geographic exposure (XOM) (CVX) (SHEL) (BP).

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