DOE Data Keeps Favoring Refineries (OIH, USO, VLO, SUN, HES)

The weekly data from the Department of Energy has some very big surprises, some of which are bullish for oil and some of which are good for the consumer.  The key ETFs of Oil Services HOLDRs (NYSE: OIH) and the United States Oil (NYSE: USO) ETF are moving but we are looking at Valero Energy Corp. (NYSE: VLO), Sunoco Inc. (NYSE: SUN), and Hess Corporation (NYSE: HES) as the beneficiaries here today because of the increased refining rates we are seeing.

The weekly crude inventories came out DOWN 2.202 million barrels to 353.963 million barrels.  Dow Jones was expecting a gain of 1 million barrels and we were looking for a flat to positive number.  Gasoline also posted a drop of -1.036 million barrels to 221.338 million barrels. Dow Jones had an estimate of -700,000 barrels, but we expected a drop of 500,000 or less.

The big surprise again came from refineries.  The weekly refining capacity ran at 85.59%.  The earlier week was 84.49% and Dow Jones had an estimate of 84.6%.  We would have been satisfied with anything above 84% and expected about 85%.  With refineries having had severe margin compressions and even posting losses, some may continue to interpret this data as evidence that refineries are finally becoming more able to pass on their higher costs and that margins are starting to improve… After all, why the hell work harder and increase production if they will just lose more money?

Valero Energy Corp. (NYSE: VLO) is up 1.9% at $20.04, Sunoco Inc. (NYSE: SUN) is up 0.6% at $30.52, and Hess Corporation (NYSE: HES) is up 0.6% at $65.45.  The Oil Services HOLDRs (NYSE: OIH) is up 1.3% at $126.74.

JON C. OGG