PetSmart, currently included in the S&P Midcap 400 index, will be replaced on that list by Cabela’s Inc. (NYSE: CAB), a specialty retailer of hunting and outdoor goods. PetSmart’s market cap is about $7.3 billion, while Cabela’s is about $3.8 billion.

The final change to the S&P Dow Jones indexes moves Acorda Therapeutics Inc. (NASDAQ: ACOR) into the S&P Smallcap 600 Index, replacing Cabela’s. Acorda is a commercial stage biopharmaceutical firm and its market cap is about $1 billion.

Shares of PetSmart are up 3% in premarket trading this morning at $69.60 in a 52-week range of $39.53 to $72.75.

Cabela’s shares are up about 0.8% at $55.41 in a 52-week range of $19.12 to $55.65.

Acorda’s shares are inactive in the premarket, having closed at $25.55 last night, in a 52-week range of $18.36 to $27.74.

Paul Ausick

In the U.S., a fire at a Chevron Corp. (NYSE: CVX) refinery in California has reduced output there to about 60% of capacity. Lower refinery output also has been reported at refineries owned by BP PLC (NYSE: BP), Sunoco Inc. (NYSE: SUN), Valero Energy Corp. (NYSE: VLO) and privately held Sinclair Oil Corp.

Gasoline inventories have been falling, according to the U.S. Energy Information Administration, but are expected to pick up again as refiners begin to produce fall and winter grade fuel. Ahead of today’s EIA petroleum status report, analysts expected another inventory decline of 1 million barrels.

Oddly enough, though, a recent Reuters/Ipsos poll ranks gasoline prices 10th out of 10 factors influencing voters who are evaluating President Obama’s job performance and the country’s direction. According to the poll, health care, the economy and jobs are the three major voter concerns. One of the pollsters noted:

People talk a lot about how gas prices drive attitudes, but it doesn’t seem to have a lot of impact either on Obama’s job approval or how people see the country going. People seem to see gas prices as a separate issue the government doesn’t have as much control over. … People really do seem to understand how little control the president has over the price of gasoline.

According to GasBuddy.com, the average retail price for a gallon of regular gasoline in the U.S. is $3.70, compared with $3.69 a week ago and $3.49 a month ago. One year ago gasoline cost $3.59 per gallon.

Paul Ausick

The network will be called the Merchant Customer Exchange, or MCX. It is unclear how much money each participating merchant will contribute to the network’s development, and no launch date has been set.

Few shoppers currently use their smartphones as mobile-payment devices, but industry experts expect that to change. Mobile-payment transactions are estimated to rise to $600 billion worldwide by 2016, compared to $172 billion this year, according to market research firm Gartner Inc.

And so financial institutions and technology firms are spending billions of dollars to develop what are sometimes called digital wallets. Google Wallet began operating last year on the technology company’s Android devices. Isis, a collaboration of AT&T Inc. (NYSE: T), T-Mobile USA Inc. and the Verizon Wireless, will start trials later this summer.

Other merchants that have signed onto the MCX venture include Best Buy Co. (NYSE: BBY), Target Corp. (NYSE: TGT), Lowe’s Companies (NYSE: LOW), Royal Dutch Shell PLC (NYSE: RDS-A), Sears Holdings Corp. (NASDAQ: SHLD) and Darden Restaurants Inc. (NYSE: DRI).

In a deal similar to the one struck by Delta Air Lines Inc. (NYSE: DAL) for the ConocoPhillips (NYSE: COP) refinery near Trainor, Pennsylvania, Sunoco will contribute the refinery assets to the joint venture and Carlyle will invest funds for future capital projects, working capital, and further refinery upgrades. JPMorgan Chase & Co. (NYSE: JPM), in a role similar to the role it played in the Delta/Conoco deal, will provide interim working capital to the joint venture, which is to be called Philadelphia Energy Solutions. Sunoco will own a minority interest in the refinery and Carlyle will be the majority owner. Financial details were not disclosed.

Refiners have faced hard times lately with high prices for crude oil cutting margins severely. Falling crude prices should help some, but refiners like Valero Energy Corp. (NYSE: VLO), Marathon Petroleum Corp. (NYSE: MPC), Tesoro Corp. (NYSE: TSO), and HollyFrontier Corp. (NYSE: HFC) have seen margins tumble and share prices have only begun to recover from late-2011 lows. Phillips 66 (NYSE: PSX), a recent spin-off from Conoco, has risen about 5% since its IPO, and Western Refining Inc. (NYSE: WNR) is up about 21% in the past 12 months based on its access to lower-priced domestic crude.

Sunoco, which is being acquired by Energy Transfer Partners LP (NYSE: ETP), had retained ownership of its refining operations, which it planned to divest separately. The company closed its Marcus Hook refinery in December after failing to find a buyer for the plant.

The new joint venture plans to upgrade the refinery’s catalytic cracking unit, creating more than 1,000 construction jobs, build a new high-speed rail unloading facility to boost quantities of crude from the Bakken shale play in North Dakota, and to build a new hydrocracker and hydrogen plant. The company is also seeking ways of taking advantage of the booming natural gas and natural gas liquids production in the Marcellus shale play.

The transaction is expected to close in the third quarter.

Sunoco’s shares are up about 0.7%, while Carlyle Group stock is up more than 2% at $22.90 after posting a new post-IPO high of $23.00.

Paul Ausick

Phillips 66 did sell a 147,000 barrel/day Pennsylvania refinery to Delta Air Lines Inc. (NYSE: DAL) last month. Sunoco Inc. (NYSE: SUN) did not sell its refineries to Energy Transfer Partners L.P. (NYSE: ETP) when the two companies merged, hoping instead for a deal for the refineries with The Carlyle Group LP (NASDAQ: CG). Chevron Corp. (NYSE: CVX) sold its 220,000 barrel/day UK Pembroke refinery to Valero Energy Corp. (NYSE: VLO) for about $1.7 billion, and Exxon Mobil Corp. (NYSE: XOM) sold virtually all of its Japanese refining assets for $3.9 billion in January. BP plc (NYSE: BP) and CVR Energy Inc. (NYSE: CVI) are also trying to sell refineries.

The Belle Chase refinery may be coming off the sale table, though, according to a report in The Wall Street Journal, which says that the company will decide this summer whether or not to try to sell the refinery. The WSJ suggests that there are few buyers for the plants because US gasoline consumption is falling and that lower crude prices are making the economics of refining attractive again.

Refining is, and always has been, a cyclical business and profitability depends largely on the cost of crude. Louisiana Light Sweet crude prices (LLS) have tracked Brent prices, making the feedstock for the Belle Chase refinery anywhere from about $14/barrel to $25/barrel higher than other domestic crudes based on WTI pricing.

In order for Phillips 66 — or anyone else — to make money on refining either the price spread between WTI and Brent must narrow significantly, or the refiner must develop an export market. Phillips 66 has little control over the price spread, but it could find an export market by the end of the summer for its refined products that would make the refinery worth keeping. It could happen.

Shares of Phillips 66 are up 1.65% today at $32.05 in a post-IPO range of $28.75-$37.45.

Paul Ausick

For refiners with significant production capacity in the middle part of the US, the price differential has made a major contribution to earnings. HollyFrontier Corp. (NYSE: HFC) this morning reported EPS that fell short of the consensus estimate, but at $1.16 were still well above the $0.79 EPS reported in the first quarter of 2011. Western Refining Inc. (NYSE: WNR) reported better-than-expected earnings last week, but Valero Energy Corp. (NYSE: VLO), Tesoro Corp. (NYSE: TSO), and Marathon Petroleum Corp. (NYSE: MPC) all came up short. ConocoPhillips has finally completed its spin-off of its refining assets into Phillips 66 (NYSE: PSX), and Sunoco Inc. (NYSE: SUN) is going to get out of the refining business one way or another by summer.

What matters for refiners is the cost of Brent. For those with operations along the Gulf and East Coasts, crude inputs come primarily from barrels priced at or near Brent prices. For mid-continent refiners like HollyFrontier and Tesoro, as the Brent-WTI differential closes, profits are very hard to come by.

If the price of WTI falls faster than the price of Brent, as has been happening, mid-continent refiners benefit. If Brent falls faster, the coastal refiners get more of the benefit because their input costs drop. As new or reversed pipelines become available to move WTI from the Cushing, Oklahoma, hub, Brent prices should drop further, adding to the benefit for coastal refineries.

No matter how one looks at it though, refining crude oil is not likely to produce big profits again any time soon, unless the US economy should jump its GDP growth above 3%. A slow, wobbly march in that direction won’t do much.

Shares in HollyFrontier are down about -1.6% in the first half-hour of trading this morning, at $29.05 in a 52-week range of $21.13-$38.90.

Paul Ausick

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

The unofficial closing bells put the DJIA down nearly 15 points to 13,213.63 (-0.11%), the NASDAQ fell nearly 23 points (-0.74%) to 3,046.36, and the S&P 500 fell -0.39% or more than 5 points to 1,397.91.

There were several analyst upgrades and downgrades today, including Demand Media Inc. (NYSE: DMD) cut to ‘equal weight’ at Evercore; TransCanada Corp. (NYSE: TRP) cut to ‘hold’ at Desjardins; American Railcar Industries Inc. (NASDAQ: ARII) raised to ‘neutral’ at UBS; Chesapeake Energy Corp. (NYSE: CHK) raised to ‘outperform’ at BMO Capital; Kraft Foods Inc. (NYSE: KFT) raised to ‘overweight’ at JPMorgan; Dollar General Corp. (NYSE: DG) raised to ‘strong buy’ at Raymond James; and Kaiser Aluminum Corp. (NASDAQ: KALU) raised to ‘buy’ at Dahlman Rose.

Earnings reports since markets closed last Friday have led to some price changes as of the last half hour of trading today: LDK Solar Co. Ltd. (NYSE: LDK) is up 10.8% at $3.28 (our coverage here); Humana Inc. (NYSE: HUM) is down -8.4% at $80.49; Senior Housing Properties Trust (NYSE: SNH) is up 0.32% at $22.09; and Sohu.com Inc. (NASDAQ: SOHU) is down -7.4% at $51.62.

Tomorrow we get earnings from Arch Coal Inc. (NYSE: ACI), Archer Daniels Midland Co. (NYSE: ADM), Bankrate Inc. (NASDAQ: RATE), Broadcom Corp. (NASDAQ: BRCM), Chesapeake Energy Corp., Domino’s Pizza Inc. (NYSE: DPZ); Office Depot Inc. (NYSE: ODP); Pfizer Inc. (NYSE: PFE); Sirius XM Radio Inc. (NASDAQ: SIRI); and Valero Energy Corp. (NYSE: VLO).

Other standouts from today include the following stocks:

Barnes & Noble Inc. (NYSE: BKS) is up about 54% at $21.07 after posting a new 52-week high of $26.00 earlier today. The company has created a joint venture with Microsoft Corp. (NASDAQ: MSFT). More coverage here.

Sunoco Inc. (NYSE: SUN) is up 19.5% at $48.89 after posting a new 52-week high of $49.50 earlier today. The company is merging with Energy Transfer Partners L.P. in a deal worth about $5.3 billion. More coverage here.

VeriFone Systems Inc. (NYSE: PAY) is down -12.7% at $47.52. The company’s stock was downgraded at Deutsche Bank, along with comments that the company was inflating its organic growth estimates.

Stay tuned for Tuesday. Richmond Fed President Jeffrey Lacker, Minneapolis Fed President Naryana Kocherlakota, San Francisco Fed President John Williams, and Philadelphia Fed President Charles Plosser are all giving speeches. Motor vehicle sales are expected to be reported throughout the day. We have noted the following events on the schedule (all times Eastern):

• 10:00 a.m. – Institute for Supply Management manufacturing index
• 10:00 a.m. – Construction spending
• 11:30 a.m. – 4- and 52-week bill auctions

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Paul Ausick

Sunoco shareholders will receive payment equal to $25 in cash and 0.5245 ETP common units for each share of Sunoco stock they own. Sunoco shareholders can choose to take $50 in cash, 1.0490 ETP common units, or the cash-common unit split, although the aggregate cash paid will be capped at 50%.

ETP also receives the general partner interest, incentive distribution rights, and 32.4% Sunoco interest in Sunoco Logistics Partners (NYSE: SXL).The owner of ETP’s general partner, Energy Transfer Equity L.P. (NYSE: ETE) will forego its right to about $210 million in incentive distributions from ETP over the next 12 quarters as part of the deal. After the deal closes Sunoco and Sunoco Logistics Partners “will operate under the Energy Transfer Equity, L.P. umbrella of companies.”

One thing that ETP won’t get is Sunoco’s refining business:

[U]nder the merger agreement, Sunoco will continue its plans for exiting its refining business as previously announced, as well as continue its plans for the proposed refinery joint venture being discussed by Sunoco and The Carlyle Group.

The joint-venture deal with Carlyle would keep Sunoco’s 335,000 barrel/day Philadelphia refinery in operation. As currently being discussed, Sunoco would contribute the Philadelphia refinery to a joint venture with Carlyle in exchange for a non-operating minority stake. The company would have no obligations to support the refining operations.

This acquisition is a pretty smart move for ETP. Its current cash flow comprises 100% natural gas transportation and logistics, and the Sunoco deal cuts the company’s natural gas cash flow to 70% of the firm’s total and adds a 30% cash flow from liquids transportation. Given the turmoil in natural gas production and pricing, ETP’s diversification into liquids couldn’t have come at a better time.

Sunoco’s shares are trading up 21% at $49.50 in the pre-market this morning, above the company’s 52-week range of $27.76-$43.43. ETP’s shares are up about 2.9% at $49.29 in a 52-week range of $38.08-$54.71.

Paul Ausick

Facebook and Instagram

The fight over the questionable value of social networks, fueled by the upcoming IPO of Facebook, got a boost as Facebook made a billion dollar acquisition. The company it bought — Instagram — is a maker of a popular photo-sharing app for mobile phones. It seems a number of other products do the same thing. Apple’s iPhone is set up to accommodate similar features. But Facebook has been sharply criticized for its lack of a model to make money on mobile devices. Some experts believe this trouble argues against a $100 billion value for the company, which has 900 million users around the world. Other online firms, led by Google (NASDAQ: GOOG), make significant amounts of money with their smartphone applications. Even if Facebook wants to gain ground in the portable device business, $1 billion is a huge amount to spend for a firm that has 30 million users and next to no sales.

Honda in China

Honda (NYSE: HMC) is the latest multinational car company to pursue China’s vehicle market. Chinese drivers bought 18 million cars and light trucks last year, well ahead of the 12.5 million sold in the United States, now the second-largest market. But the growth of sales in China has disappeared, primarily due to the end of an incentive program set by the central government. Global manufacturers will have to content to compete for portions of a large, but no longer fast-growing pie. Honda says it will offer 10 new models in China by 2015. The Japanese company can be added to a dozen others, like Nissan and Ford (NYSE: F), that expect tremendous gains. Each will have to gain market share in a market dominated by General Motors (NYSE: GM), Volkswagen and increasingly aggressive local companies. Honda may want to double sales, but it has nothing other than projections that are nearly impossible to support.

Northeast Refineries

There is a relatively new reason to believe gasoline prices will rise, at least in part of the U.S. CNNMoney reports that almost 50% of the gas refinery capacity in the Northeast will be shuttered within a few months. This will be driven by the closing of a Sunoco (NYSE: SUN) facility. ConocoPhillips (NYSE: COP) turned of the lights at its refinery in the region late last year. U.S. drivers are already bedeviled by gas prices near $4 on average for a gallon of regular. Leaks in platforms in the North Sea, trouble with supply due to sanctions on Iran, unrest in Nigeria and a spread of government protests in the Middle East have pushed WTI crude above $100 and kept it there. There is some hope that, if the U.S. and its energy allies open their strategic oil reserves, crude prices may fall. There was an attempt at that in mid-2011, though, and the cost of oil only stayed down for three months. It is also an open issue of whether the Saudis will cut their production if oil reserves are tapped. The world’s largest oil producer has a number of reasons to keep prices high.

Douglas A. McIntyre