U.S. Refiners: Is The Rally Over?

U.S. refining stocks have further upside.

U.S. Refiners: Is The Rally Over? R efinery stocks have gone vertical since the middle of 2012 and may experience temporary consolidations. Investors may get spooked by a sharp rise in U.S. product inventories, refinery crack spread compression and upcoming Seaway pipeline capacity additions this month.

However, any pullback will likely be fleeting.

According to our Commodity & Energy Strategy service, the Brent/WTI spread will stay wide, despite the Seaway capacity expansion this month. The upcoming planned capacity addition was insufficient from the start to fully resolve the Cushing storage issue.

Furthermore, U.S. oil production keeps surprising to the upside. Cushing inventories have risen above 50 million barrels and petroleum railroad transportation is skyrocketing. This highlights that transportation bottlenecks will persist. Importantly, refinery stocks are still cheap by historical measures and earnings will continue to expand. Massive dislocation of the WTI sour grade relative to its sweet counterpart will give refinery profits a further boost.

Also, the jump in refined product inventories, which has been a source of investor concerns over the past month, is mostly seasonal and should not lead to much further crack spread compression against WTI.

Bottom Line: The rally in U.S. refinery stocks is not over. (tweet this!)

Print Friendly
Macroeconomic Research
BCA Research About BCA Research

BCA Research is the world’s leading provider of independent investment research. Since 1949, the firm has supported its clients in making better investment decisions through the delivery of leading-edge economic analysis and comprehensive investment strategy research. With access to over 150,000 raw time-series, BCA strategists are aided by one of the most extensive research databases in existence, cover every region of the globe, and provide analysis on virtually every investable asset class. BCA maintains a head office in Montreal, with local offices in New York, Los Angeles, London, Hong Kong, Sydney, and Buenos Aires. Not yet a client of BCA? Take a short trial to our research.

Speak Your Mind

*