Why U.S. Refiners Are Getting Crushed on Oil Export Allowance

Energy

Published: June 25, 2014 12:50 pm

Last Updated: June 25, 2014 12:51 pm

With a positive change in one location, you often get a negative reaction elsewhere. It is true in the stock market and the economy, almost like a financial yin and yang of sorts. With word that the United States will allow Enterprise Products Partners L.P. (NYSE: EPD) and Pioneer Natural Resources Co. (NYSE: PXD) to export super-light oil (condensate) for the first time decades, the move is crushing refinery stocks.

The news from Wednesday is being treated as though it will become much more widespread. That is not the case yet, but institutional investors are reading the writing on the wall. What do you think will happen to refining operations here if they have been receiving crude to turn around and immediately send out finished products like gasoline and the like?

This private ruling covers the type of oil that has become much more plentiful due to the boom in shale drilling, and therefore from fracking. This private ruling from the U.S. Commerce Department changes what has been a four-decade ban on crude oil exports.

HollyFrontier Corp. (NYSE: HFC) was down more than 8% at $44.95, against a 52-week range of $38.98 to $53.42. Its trading volume shortly after noon ET was more than 6.8 million shares, versus a typical full day’s volume of 2.181 million shares.

Phillips 66 (NYSE: PSX) was down 4.5% at $81.09, against a 52-week range of $54.80 to $87.05. Volume shortly after noon was 5.3 million shares, versus a typical full day’s volume of 3.23 million shares.

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Valero Energy Corp. (NYSE: VLO) was down 9.5% at $50.65, against a 52-week range of $33.00 to $59.69. Valero’s trading volume shortly after noon was more than 24 million shares, versus a typical full day’s volume of only 6.33 million shares.

Western Refining Inc. (NYSE: WNR) was down 7% at $37.78, against a 52-week range of $25.62 to $45.00. Volume shortly after noon was 2.3 million shares, versus a typical full day’s volume of 1.322 million shares.

Elsewhere, shares rose in the winners. Enterprise Products Partners L.P. (NYSE: EPD) was up another 1.3% at $77.12, but trading volume mid-day was just over 750,000 shares, versus an average day’s volume of just over a million shares. Shares of Pioneer Natural Resources Co. (NYSE: PXD) were up another 4% at $231.07, and mid-Wednesday trading volume was more than 1.9 million shares, versus almost 1.3 million shares for a full day’s typical trading volume.

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Many investors will look for an oversold bounce, but investors need to keep this in mind — exponential down volume, particularly block volume orders, signals that the big institutions are bailing out of these stocks on a massive level. This might not be the end of an era, but when rules change it creates winners and losers. Today the U.S. refining companies are the expected losers.

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