Oil Refining Stocks Rise on Swelling Margins

Adding to the bounce in margins are the swelling inventories. The nation’s commercial crude oil tanks are about two-thirds full as refineries slow down their buying while performing seasonal maintenance and turnaround to produce summer-grade fuel.

We noted last week that some analysts think a contango market — wherein current spot prices are lower than futures prices for oil — could strengthen into a “super contango” due to increased production and lack of demand for refined product. Add in the disruptions in refining due to weather (in the Northeast), strikes and explosions (in the Midwest and on the West Coast) and higher product prices overseas (a boon to Gulf Coast refiners).

The whole concoction adds up to margins on a 3-2-1 crack spread of as much as $35 a barrel for West Coast refiners, around $30 a barrel for refiners in the Northeast and nearly $20 a barrel for Gulf Coast refiners. A 3-2-1 crack means that for every three barrels of crude the refiner produces two barrels of gasoline and one barrel of distillates. The spread is the difference in the price paid for the crude and price received for the refined products.

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The refiner getting the biggest boost on Monday is Alon USA Energy Inc. (NYSE: ALJ). Shares traded about 4.3% higher shortly after the noon hour, at $14.47 in a 52-week range of $10.28 to $17.58. Alon USA owns three refineries in California, one in Texas and one in Louisiana, with a total throughput capacity of 217,000 barrels a day.

Phillips 66 (NYSE: PSX) was up 2.3%, at $77.10 in a 52-week range of $57.33 to $87.98. Phillips 66 is the largest independent refining company in the country, with a market cap of about $42 billion, compared with Alon’s $1 billion market value. Its total U.S. throughput capacity is about 1.82 million barrels a day.

Valero Energy Corp. (NYSE: VLO) traded up about 0.7%, at $59.11 in a 52-week range of $42.53 to $62.91. Valero is the largest independent refiner in the United States, with 1.9 million barrels a day of capacity. Valero’s market cap is around $30.54 billion.

Marathon Petroleum Corp. (NYSE: MPC) traded up more than 2% to $100.52, in a 52-week range of $74.64 to $108.32. Marathon’s throughput capacity is about 1.7 million barrels a day. The company’s Catlettsburg, Ky., refinery has a capacity of 242,000 barrels a day and has been operating at some capacity throughout the United Steelworkers Union strike that began February 1. Marathon’s market cap is $27.6 billion.

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