The deal was struck with the US Environmental Protection Agency and the state of Indiana is expected to cut 90% of the refinery’s flaring-related emissions. A similar deal was struck between the EPA and Marathon Petroleum Corp. (NYSE: MPC) for six of the company’s refineries.

The capability to process the nastier oil sands crude should lower the cost of crude to BP and improving the company’s margins. Oil sands crude has been selling at a discount of as much as $20/barrel to WTI crude and even more to Brent crude.

The Whiting refinery is expected to start refining oil sands crude next year.

Paul Ausick

Refiners are no better off: Valero Energy Corp. (NYSE: VLO) is down -7.7% in the past month, Marathon Petroleum Corp. (NYSE: MPC) is down about -9.8%, while Tesoro Corp. (NYSE: TSO) is up a bare 0.4%. Refiners have been surviving off the wide differential between WTI and Brent crudes and as the differential narrows, profits are harder to come by.

For the integrated oil companies, the price of crude has been the determining factor in a company’s profit picture: the higher the price, the bigger the profit. That makes sense. For the services company, higher prices typically mean more work as producers want to get more oil to sell.

Because crude prices are at a seven-month low now, we thought it would be interesting to look for value in some of the big oil stocks. After all, low crude prices mean share sell-offs, so there ought to be some value left on the table.

With the exceptions of Exxon and Chevron, all the companies we looked at have implied gains exceeding 30% if analysts have gotten target prices right. That’s some pretty good value, but we thought we’d try to handicap the race a bit more closely.

Exxon Mobil Corp. (NYSE: XOM) traded at $82.21 and has a market value of $383 billion. The consensus target price from Thomson Reuters is $94.53 and the 52-week range is $67.03 to $87.94. Exxon has a dividend yield of 2.8%. The implied upside to the consensus target is 15%, but we would note that the target is above the 52-week high.

Chevron Corp. (NYSE: CVX) traded at $99.71 and has a market value of $196 billion. The consensus target price from Thomson Reuters is $124.88 and the 52-week range is $86.68 to $112.28. Chevron has a dividend yield of 3.7%. The implied upside to the consensus target is 25%, but we would note again that the target is above the 52-week high.

BP plc (NYSE: BP) traded at $38.26 and has a market value of $121 billion. The consensus target price from Thomson Reuters is $53.25 and the 52-week range is $33.62 to $48.34. BP has a dividend yield of 5.2%. The implied upside to the consensus target is 39%, but we would note again that the target is above the 52-week high.

Schlumberger Ltd. (NYSE: SLB) traded at $67.47 and has a market value of $89 billion. The consensus target price from Thomson Reuters is $89.20 and the 52-week range is $54.79 to $95.53. Schlumberger has a dividend yield of 1.7%. The implied upside to the consensus target is 32%, and the target price is lower than the 52-week high.

Halliburton Co. (NYSE: HAL) traded at $31.40 and has a market value of about $29 billion. The consensus target price from Thomson Reuters is $47.28 and the 52-week range is $27.21 to $57.77. Halliburton has a dividend yield of 1.2%. The implied upside to the consensus target is 51%, and again the target price is lower than the 52-week high.

Baker Hughes Inc. (NYSE: BHI) traded at $42.20 and has a market value of about $18 billion. The consensus target price from Thomson Reuters is $56.33 and the 52-week range is $39.40 to $81.00. Baker Hughes has a dividend yield of 1.5%. The implied upside to the consensus target is 33%, and again the target price is well below the 52-week high.

Valero Energy Co. (NYSE: VLO) traded at $22.17 and has a market value of about $12 billion. The consensus target price from Thomson Reuters is $30.15 and the 52-week range is $16.40 to $28.68. Valero has a dividend yield of 2.8%. The implied upside to the consensus target is 36%, and again the target price is above the 52-week high.

Marathon Petroleum Corp. (NYSE: MPC) traded at $36.38 and has a market value of about $12 billion. The consensus target price from Thomson Reuters is $52.50 and the 52-week range is $26.35 to $47.43. Marathon has a dividend yield of 2.9%. The implied upside to the consensus target is 44%, and again the target price is above the 52-week high.

Tesoro Corp. (NYSE: TSO) traded at $23.49 and has a market value of about $3 billion. The consensus target price from Thomson Reuters is $31.36 and the 52-week range is $17.43 to $30.15. Tesoro does not pay a dividend. The implied upside to the consensus target is 34%, and again the target price is above the 52-week high.

For comparison, The SPDR S&P Oil & Gas Exploration and Production ETF (AMEX: XOP) traded at $50.45 in a 52-week range of $37.67 to $65.58. That’s about 30% below the 52-week high. The Market Vectors Oil Services ETF (AMEX: OIH) traded at $37.47 in a 52-week range of $35.32 to $45.14, again about 30% below the 52-week high.

Target prices for the large integrated oil companies are above 52-week highs, as are target prices for the refiners. Unless the price of crude rises sharply, the targets are out of reach for the integrated companies. For refiners, they’re whipsawed if prices for WTI open a bigger gap versus Brent or if WTI rise and Brent falls. No chance at those targets either way.

Targets for the services companies are lower than 52-week highs, which improves the chances of hitting those targets. Schlumberger, the largest of the services companies, and Baker Hughes both look appear to have the best chance to boost their share prices.

Paul Ausick

The unofficial closing bells put the DJIA down more than 76 points to 12,932.01 (-0.59%), the NASDAQ fell more than 11 points (-0.39%) to 2,946.27, and the S&P 500 fell -0.43% or nearly 6 points to 1,363.71.

There were several analyst upgrades and downgrades today, including Ford Motor Co. (NYSE: F) maintained as ‘buy’ with a target price of $19 at Argus; Wynn Resorts Ltd. (NASDAQ: WYNN) maintained ‘outperform’ with a target price of $166 at Credit Suisse; Capital One Financial Corp. (NYSE: COF) raised to ‘hold’ at Argus; BP plc (NYSE: BP) cut to ‘underweight’ at Barclays; and Synacor Inc. (NASDAQ: SYNC) cut to ‘underperform’ at BofA/ML.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Charter Communications Inc. (NASDAQ: CHTR) is down up 5.5% at $65.24 after posting a new 52-week high of $66.18 earlier today (more coverage here); Hecla Mining Co. (NYSE: HL) is up 4.1% at $4.04 (more coverage here); OfficeMax Inc. (NYSE: OMX) is up 10.5% at $4.85; Tenet Healthcare Corp. (NYSE: THC) is up 1.4% at $5.11; The Wendy’s Co. (NASDAQ: WEN) is down -4.3% at $4.66 (more coverage here); Rosetta Stone Inc. (NYSE: RST) is up 18.4% at $12.64; and Pioneer Drilling Co. (NYSE: PDC) is up 5.5% at $8.03.

On Wednesday we are scheduled to get earnings from AOL Inc. (NYSE: AOL), Agrium Inc. (NYSE: AGU), CenturyLink Inc. (NYSE: CTL), Dollar Thrifty Automotive Group Inc. (NYSE: DTG), Macy’s Inc. (NYSE: M), Melco Crown Entertainment Ltd. (NASDAQ: MPEL), News Corp. (NASDAQ: NWS), Cisco Systems Inc. (NASDAQ: CSCO), Tesla Motors Inc. (NASDAQ: TSLA), Toyota Motor Corp. (NYSE: TM), and priceline.com Inc. (NASDAQ: PCLN).

Other standouts from today include the following stocks:

Fossil Inc. (NASDAQ: FOSL) is down -36.8% at $79.50. The fashion accessories company revealed a weak forecast today. More coverage here.

Dendreon Corp. (NASDAQ: DNDN) is down -24.6% at $8.81. The drug maker’s earnings were not as strong as expected. More coverage here.

Avalon Rare Metals Inc. (AMEX: AVL) is down -24% at $1.67 after posting a new 52-week low of $1.58 earlier today. The rare earths miner is delaying a feasibility study. More coverage here.

Stay tuned for Wednesday. Cleveland Fed President Sandra Pianalto and Philadelphia Fed President Charles Plosser are giving speeches. We have noted the following events on the schedule (all times Eastern):

• 10:00 a.m. – Wholesale trade report
• 10:30 a.m. – EIA weekly petroleum status report
• 1:00 p.m. – 10-year note auction

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Paul Ausick

AECOM Technology Corporation (NYSE: ACM) Cut to Underperform at BofA/ML.

Alnylam Pharmaceuticals, Inc. (NASDAQ: ALNY) Started as Overweight at JPMorgan.

Biogen Idec Inc. (NASDAQ: BIIB) Reiterated Buy with $145 target at Argus.

BP plc (NYSE: BP) Cut to Underweight at Barclays.

Capital One Financial Corp. (NYSE: COF) Raised to Hold from Sell at Argus.

China Petroleum & Chemical (NYSE: SNP), or Sinopec, named Bear of the Day at Zacks.

Cognizant Technology Solutions (NASDAQ: CTSH) Raised to Outperform at R.W. Baird.

Electronic Arts Inc. (NASDAQ: EA) Raised to Buy at Needham.

El Paso Pipeline Partners, LP (NYSE: EPB) Started as Outperform with $38 target at Credit Suisse.

Embraer SA (NYSE: ERJ) Cut to Neutral at Citigroup.

Ford Motor Co. (NYSE: F) maintained Buy with $19 target at Argus.

Louisiana-Pacific Corporation (NYSE: LPX) Raised to Buy at Deutsche Bank.

Manulife Financial (NYSE: MFC) named Bull of the Day at Zacks.

Millennial Media Inc. (NYSE: MM) Started as Neutral at Goldman Sachs; Started as Equal-weight at Morgan Stanley; Started as Equal-weight at Barclays.

Rackspace Hosting, Inc. (NYSE: RAX) maintained Neutral with $57 target at Goldman Sachs.

Synacor Inc. (NASDAQ: SYNC) Cut to Underperform at BofA/ML.

Vertex Pharmaceuticals (NASDAQ: VRTX) Raised to Equal-weight at Morgan Stanley.

Wynn Resorts Ltd. (NASDAQ: WYNN) Maintained Outperform with $166 target at Credit Suisse.

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JON C. OGG

But if prices fall that low, the big integrated oil companies like Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), ConocoPhillips (NYSE: COP), Total SA (NYSE: TOT), and BP plc (NYSE: BP) are going to be pinched. Exxon, for example, has based its 2012 budget on an average Brent crude price of $111/barrel. The company’s average production cost for a barrel of oil in 2011 was just under $101/barrel. Chevron’s average production cost for a barrel of liquids was nearly $103/barrel in 2011.

Bloomberg today cites Byron Wien of The Blackstone Group LP (NYSE: BX) with a forecast that crude prices will drop this year. Production is up in the Russia, Saudi Arabia, and the US, which should lead to lower prices. Bloomberg’s survey of 30 analysts puts a median price of $115.50/barrel on Brent for this quarter, but 6 of the analysts predicted prices at or below $100/barrel.

The fear premium that pushed Brent prices to more than $125/barrel earlier this year is being wrung out of the price now as the possibility recedes of a military confrontation with Iran. Demand in the developed world is falling, and China, the world’s largest consumer of crude after the US, has slowed both its economy and its oil imports.

These two factors are combining to push crude prices down at a pretty good rate. But a price of $100/barrel would mean that Exxon and Chevron would lose money on every barrel they produce. A $100/barrel price would also mean that all the supermajors would very likely have to scale back their plans for capex spending, which would significantly reduce exploration and future supply. That in turn would likely produce a supply shortfall which could easily cause a spike in crude prices if and when demand picks up.

It’s often said that the best cure for high prices is high prices. OPEC may get its target price, but that won’t cure the underlying cause for high crude prices. The stuff is scarce, even when it seems that there’s a lot of it available.

Paul Ausick

Nokia (NYSE: NOK) promises to build new handsets to stimulate demand. (Reuters)

Results in Asia help BMW earnings. (Reuters)

Oracle (NASDAQ: ORCL) balks at a settlement with Hewlett-Packard (NYSE: HPQ) as they wrangle over which company holds IP to an important chip. (Reuters)

The shale boom causes an increase in the burning of environmentally harmful waste gas. (Reuters)

China, Japan and South Korea will increase investments among themselves in the bonds of the other nations. (Reuters)

Amazon.com (NASDAQ: AMZN) to create original video programs for its movie service. (Reuters)

Natural gas drilling has dropped, which may push prices higher. (WSJ)

Carlyle cuts the price of its initial public offering. (WSJ)

Hawker Beechcraft may file for Chapter 11. (WSJ)

The judge in a suit against BP (NYSE: BP) says that a trial will continue as the UK settles claims for the Gulf spill. (WSJ)

The head of AT&T (NYSE: T) says the government’s failure to allow a deal with T-Mobile will cost customers money. (WSJ)

India to further cut oil imports from Iran. (WSJ)

Wynn (NASDAQ: WYNN) receives permission to build a new casino in Macau, but many of its competitors have already started to build. (WSJ)

Green Mountain Coffee Roasters (NASDAQ: GMCR) shares are hit by poor earnings. (WSJ)

Time Warner’s (NYSE: TWX) CNN losses audience as the viewership of MSNBC and Fox grows. (WSJ)

Research In Motion (NASDAQ: RIMM) launches several models of its new BlackBerry as the company presses for a turnaround. (WSJ)

EU finance ministers do not reach agreement on new bank capital rules. (WSJ)

Canada’s pipeline companies to shift the flow of oil to the east coast. (WSJ)

Target (NYSE: TGT) will stop selling the Amazon Kindle. (FT)

Shares of Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A) are running behind the S&P for the third year in a row. (Bloomberg)

One key to Samsung’s successful competition with Apple (NASDAQ: AAPL) in the smartphone race is products with different screen sizes. (Bloomberg)

Douglas A. McIntyre

Delta will pay $150 million for the refinery and expects to spend another $100 million to boost the plant’s capacity to make jet fuel, which is the reason Delta bought the refinery in the first place. The deal follows yesterday’s $5.3 billion acquisition by Energy Transfer Partners L.P. (NYSE: ETP) of downstream company Sunoco Inc. (NYSE: SUN).

A couple of interesting questions follow Delta’s entry into the refining business. First, will other airlines follow? United Continental Holdings Inc. (NYSE: UAL), US Airways Group Inc. (NYSE: LCC), and Southwest Airlines Co. (NYSE: LUV), like other large carriers, follow a hedging strategy that tries to even out the ups-and-downs of crude prices. When it works, as it did for Southwest in 2006 and 2007, management looks like geniuses and the airlines makes a ton of profit. When it doesn’t work, as it didn’t for Southwest a few years later, the less said the better.

The only reason to buy a refinery is to mitigate price risk on crude oil. Delta claims the cost of the refinery is equivalent to the price it would pay for one widebody jet. The company expects to save twice that much annually on fuel costs going forward. Before United and the other carriers jump into the refining business they will want to see if Delta can actually realize its projected savings.

Which brings us to the second question: how does Delta expect to mitigate crude oil price risk? When the possible refinery acquisition first became known, there were reports that JPMorgan Chase & Co. (NYSE: JPM) would take on the crude oil trading that would be needed to supply the refinery. As announced today:

[Delta subsidiary] Monroe is partnering with leading energy companies to supply crude oil and receive jet fuel in exchange for Trainer’s non-jet fuel outputs. Under a three-year agreement, BP will supply the crude oil to be refined at the facility. Monroe Energy will exchange gasoline and other refined products from Trainer for jet fuel from Phillips 66 and BP elsewhere in the country through multi-year agreements.

The “leading energy companies” are ConocoPhillips and BP plc (NYSE: BP). If BP is supplying the crude, the price will be set at or very near Brent crude prices. Jet fuel is generally more expensive than gasoline and other refined products. As Brent prices rise, jet fuel prices will also rise and probably rise faster than gasoline or diesel prices. Thus, Monroe/Delta will be trading lower-priced products for a higher-priced product. No savings there.

The only way for Delta to make sure it saves money is to source its crude more cheaply. In the US, that means getting crude from North Dakota’s Bakken field to the East Coast. There’s no pipeline (yet) to do that. Surely the lack of cheap crude is why JPMorgan is no longer in the picture. The proposed sale of Sunoco’s 335,000-barrel/day Philadelphia refinery to The Carlyle Group will not be concluded if the private equity firm cannot find a source of cheaper crude.

Delta apparently believes that by sourcing crude from BP the airlines has insulated itself from crude price risk. Not having seen details of the contract it’s hard to say. But oil companies are not charitable organizations and BP won’t have made any big concession on price.

Shares of Delta are up about 2.2% in the pre-market at $11.20 in a 52-week range of $6.21-$11.60. A new annual high is certainly within reach today.

Paul Ausick

BP (NYSE: BP) profits fall as it sells some assets to pay for the Gulf spill. (Reuters)

New York state pension funds vote against five Walmart (NYSE: WMT) directors. (Reuters)

Microsoft (NASDAQ: MSFT) takes a position in the Barnes & Noble (NYSE: BKS) e-reader operation. (Reuters)

Two top Federal Reserve officials say there will be no more easing by the central bank. (Reuters)

A shareholder sues Google (NASDAQ: GOOG) to stop a stock split that would favor management control. (Reuters)

Bank of America (NYSE: BAC) will cut a large number of investment and commercial bankers. (WSJ)

Sales of cars in Japan jumps in April. (WSJ)

Economies of scale, still enjoyed because of Nokia’s (NYSE: NOK) size, may help turn around the company. (WSJ)

Home ownership falls to a 15-year low. (WSJ)

A large number of management departures hurts the ability of Freddie Mac and Fannie Mae to recover. (WSJ)

St. Jude Medical (NYSE: STJ) continues to wrestle with problems with one of its heart devices. (WSJ)

Coca-Cola (NYSE: KO) may buy Monster Beverage (NASDAQ: MNST), an energy drink company. (WSJ)

General Electric (NYSE: GE) sales in Australia rivals its Chinese revenue. (WSJ)

Caterpillar (NYSE: CAT) may face a large strike. (WSJ)

Delta Air (NYSE: DAL) finally decides to buy a northwest refiner. (WSJ)

Banks sharply increase loans to companies with junk-bond ratings. (WSJ)

The S&P 500 posts its first monthly loss since November. (NYT)

Germany continues to insist that austerity is the best means to improve the finances of troubled EU nations. (FT)

Groupon (NASDAQ: GRPN) will add two financial experts to its board. (FT)

Douglas A. McIntyre

Despite a large increase oil prices which helped the results of other oil giants which include Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), BP’s profit for the first quarter was $5.9 billion down from $7.2 billion in the same period last year.

BP bragged about its new exploration and refinery prospects. The comments continue to be overshadowed by the largest mistake made by any multinational oil company in more than a generation.

Douglas A. McIntyre

Austerity vs. Stimulus

Germany continues its lonely quest for austerity as the key to the repair of EU finances. The position might not mean much if the region’s largest economy were not the cornerstone of bailout capital. According to the Financial Times, Germany’s finance minister Wolfgang Schäuble said, “The first precondition in order to have sustainable growth everywhere in Europe is fiscal consolidation. If now we talk about growth, it shouldn’t be understood as a change of direction. That would be a mistake.” The comments must have been taken as an insult because the finance minister of troubled Spain, Luis de Guindos, was present. His nation has an unemployment rate of over 24% and has moved into a recession. He and leaders of other weak nations in the region have argued that austerity be mixed with some level of stimulus. François Hollande, who likely will be the next president of France, has pushed for stimulus as well. Germany’s opposition will not be turned aside. It has too much money.

Bank of America Layoffs

The Wall Street Journal reported a rumor that Bank of America (NYSE: BAC) will cut as many as 2,000 jobs, primarily at its investment bank and commercial units. If this happens it is another sign that Wall St. firms in general have been hurt by a downturn in underwriting, M&A and business loans. Some estimates say that there are tens of thousand of jobs at risk at the largest investment banks, which include Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS). Bank of America has been particularly troubled by its weak balance sheet and fights with state and federal governments over its mortgage and mortgage financial instrument practices. Last year, Bank of America said it would cut 30,000 jobs. What were among the bank’s most-profitable units are now struggling as well.

Dow Rally Continues

The S&P 500 was down slightly last month, as was the NASDAQ. For each, it was the first drop since November. The DJIA rose a tiny amount, which kept its multimonth rally alive. The NASDAQ’s prospects would have been worse if it were not for the success of the shares in Apple (NASDAQ: AAPL) and, to a smaller extent, Google (NASDAQ: GOOG). Some experts say that the presence of the two companies in the index distorts its prospects. The improvement of the DJIA was driven by an increase in financial shares, especially JP Morgan (NYSE: JPM) and American Express (NYSE: AXP), as well as in tech giant Microsoft (NASDAQ: MSFT).

Douglas A. McIntyre