Crude oil refiners have taken some heavy hits in the past couple of months. Because the cost of crude contributes about 65% to the price of gasoline, gas prices have remained high, but refiners’ margins have been clipped.

West Texas Intermediate (WTI) crude oil spot prices are up from around $94.50 a barrel in May to about $105.65 today. Brent crude spot prices have risen more modestly, from around $102.50 a barrel to $109.40 today. The spread between the two crude grades has closed from around $8 a barrel to around $4 a barrel.

The anomaly is that U.S. stockpiles of crude are near the upper limit of their five-year average, and stocks of gasoline are well above the upper limit of their five-year average range. Commercial stocks of crude are slightly lower today than they were at the end of May, at about 367 million barrels, compared with 391 million barrels. Gasoline stocks are slightly higher, totaling about 219 million barrels in May and 224 million barrels today. All things equal, gasoline prices should be falling, but they certainly are not.

There are two primary reasons for this. As more WTI crude makes its way to markets on the East and Gulf coasts of the United States, the price of crude is rising in relation to the price of Brent crude. Many refiners with access to cheaper WTI were booking substantial profits when the spread was much greater than it is today. As the spread narrows, so do profits that relied on the spread.

The federal requirement for blending ethanol is the second major culprit. We have discussed this before, but the short version is that mandated production for 2013 is based on an estimate of fuel demand made in 2007. That estimate is much higher that today’s real demand, and ethanol makers are not going to make products they cannot sell. But blenders — usually refiners — must meet the mandate regardless, and they do that by buying credits. Because the number of credits is limited, their price has soared to well over $1.25 each from just a few pennies at the beginning of the year.

Refiners are feeling the pain. So far, both Valero Energy Corp. (NYSE: VLO) and Marathon Petroleum Corp. (NYSE: MPC) have issued earnings warnings for the second quarter. Phillips 66 (NYSE: PSX), Tesoro Corp. (NYSE: TSO) and HollyFrontier Corp. (NYSE: HFC) have been silent so far on second-quarter estimates. Of those, both Tesoro and HollyFrontier have thrived on the WTI-Brent spread and profits could be in jeopardy. Phillips 66 received 68% of its first-quarter crude from lower-cost Canadian sources. The spread between Canadian crude and WTI also has narrowed, but by only around $6 a barrel, and it still rests at near $16 a barrel.

There looks to be only one viable value play in refiners’ stocks, and that is probably only a short-term opportunity. Even though all refining stocks are down sharply, they could still fall significantly further because all are trading well above their 52-week lows. Here is a more detailed look:

Valero Energy Corp. (NYSE: VLO) closed last night at $34.78 and has a market value of $19.14 billion. That is about $6 a share lower than the stock’s closing price in late May and a drop of about $2 billion in market cap. The stock’s 52-week low is $22.54. The consensus price target is $45.25, down from $47.90 less than two months ago. The implied upside to that target is now 30%.

Phillips 66 (NYSE: PSX) closed last night at $57.64 and has a market cap of $35.66 billion, down from a price of $65.39 and a market cap of $40.5 billion in late May. The stock’s 52-week low is $34.50. The consensus price target is around $71.70, down only modestly from a previous target of $72.15. The implied upside is about 24%.

Marathon Petroleum Corp. (NYSE: MPC) closed last night at $69.93 and has a market cap of $22.9 billion, down from a closing price of $82.45 and a market value of $26.8 billion in late May. The stock’s 52-week low is $43.62. The consensus price target is $92.50, nearly $3 a share below the target level two months ago. The implied upside is about 32%.

Tesoro Corp. (NYSE: TSO) closed last night at $52.62, compared with a late May close of around $62 a share. The stock’s 52-week low is $25.79. The company’s market cap in May was around $8.5 billion, and that has fallen to about $7.25 billion today. The consensus price target is about $69.60, meaning the implied gain is around 32%.

HollyFrontier Corp. (NYSE: HFC) closed last night at $42.28 and has a market cap of around $8.6 billion. The stock’s 52-week low is $33.92. In late May the stock closed at $49.55 and the company’s market value totaled about $10 billion. The consensus price target is about $55.10, for an implied gain of about 30%.

Of these, only Phillips 66 indicates an implied gain of less than 30%. Based on the refiner’s access to lower-cost Canadian crude, it is likely to be the last refiner to see its profits severely pounded by higher crude prices.

It is worth keeping in mind however, that the crude market is currently sharply backwardated. That is, spot prices are higher than futures prices, and that situation cannot continue for long. Crude prices have to begin falling because stockpiles remain high, and in the United States at least, gasoline consumption is down. Refiners have increased their exports of gasoline and other refined products, but that will not continue if they cannot make a decent margin on export sales.

If crude prices begin moving steadily downward, keep an eye on the WTI-Brent spread for a clue about the fortunes of the refiners.

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