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As Crude Prices Fall, Are Refiners Going to Benefit? (HFC, WNR, VLO, TSO, MPC, PSX, SUN)

Paul Ausick — Mon, 07 May 2012 13:57:02 +0000

As of about 9:30 this morning, Brent crude is trading at its lowest price in three months, and the price differential between Brent and WTI crude closed to about $12/barrel last week before widening again to around $15/barrel this morning. The wider spread is due to the sharp decline in WTI, now trading under $98/barrel.

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

Filed under: Earnings, Economy, Oil & Gas Tagged: HFC, MPC, PSX, SUN, TSO, VLO, WNR

24/7 Wall St. Closing Bell (CHK, LVLT, QCOM, CRM, DSX, COCO, APA, WNR, YRCW, SHOO, SRE, SLE, RGLD, OWW, GM, MGM, AES, LNG, DUK, EL, PGR, WPO, GMCR, KNSY, HLF)

Paul Ausick — Thu, 03 May 2012 20:08:03 +0000

The major US stock indexes opened mostly flat this morning following a softer-than-expected report from the Institute for Supply Management on non-manufacturing growth (our coverage here). The report on new unemployment benefits claims came in better than expected, but not enough to overcome the ISM numbers (more coverage here). Retail sales reports were also weak, with growth of just 0.8% compared with an estimate of 1.5% (more coverage here). The energy sector has been particularly hard hit today on reports that supply is keeping up with demand, some weak earnings reports, and a comment from OPEC that it would like to see Brent crude at $100/barrel, not $120 or more (our coverage here).

The US dollar index rose today, now up 0.11% at 79.221. The GSCI commodity index is down about -1.3% at 678.65, with commodities mixed on the small gains in the dollar. WTI crude oil closed down -2.6% at $102.54/barrel, and Brent crude trades down -1.84% at $116.02/barrel. Gold settled down -1.2% today, at $1,634.80/ounce.

The unofficial closing bells put the DJIA down nearly 62 points to 13,206.59 (-0.47%), the NASDAQ fell more than 35 points (-01.16%) to 3,024.30, and the S&P 500 fell -0.77% or nearly 11 points to 1,391.57.

There were several analyst upgrades and downgrades today, including Chesapeake Energy Corp. (NYSE: CHK) maintained as ‘buy’ but target price cut to $31 at BofA/ML and raised to ‘outperform’ at Bernstein; Level 3 Communications Inc. (NYSE: LVLT) reiterated ‘buy’ at SunTrust Robinson Humphrey and cut to ‘neutral’ at Piper Jaffary; Qualcomm Inc. (NASDAQ: QCOM) reiterated as ‘buy’ at BofA/ML; and Salesforce.com (NYSE: CRM) raised to ‘outperform’ with a $185 target price at Credit Suisse.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Diana Shipping Inc. (NYSE: DSX) is down -4.4% at $7.63; Corinthian Colleges Inc. (NASDAQ: COCO) is down -21.6% at $3.05; Apache Corp. (NYSE: APA) is down -3.7% at $91.99; Western Refining Inc. (NYSE: WNR) is down -2.6% at $18.42; YRC Worldwide Inc. (NASDAQ: YRCW) is down -8% at $6.79; Steve Madden Ltd. (NASDAQ: SHOO) is down -1.7% at $43.54; Sempra Energy (NYSE: SRE) is up 0.6% at $64.29 after posting a new 52-week high of $65.37 earlier today; Sara Lee Corp. (NYSE: SLE) is down -1% at $22.10; Royal Gold Inc. (NASDAQ: RGLD) is down -2.6% at $59.43 (more coverage here); Orbitz Worldwide Inc. (NYSE: OWW) is up 4.9% at $4.09; General Motors Co. (NYSE: GM) is down -2.3% at $22.42 (more coverage here); and MGM Resorts International (NYSE: MGM) is down -4.4% at $12.95.

Tomorrow we get earnings from AES Corp. (NYSE: AES), Cheniere Energy Inc. (AMEX: LNG), Duke Energy Corp. (NYSE: DUK), Estee Lauder Companies Inc. (NYSE: EL), Progressive Corp. (NYSE: PGR), and The Washington Post Co. (NYSE: WPO).

Other standouts from today include the following stocks:

Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) is down -47.3% at $26.11. The company reported earnings last night, and lowered guidance. More coverage here and here.

Kensey Nash Corp. (NASDAQ: KNSY) is up 32.2% at $38.35. The company is being acquired by a Dutch firm for $360 million. More coverage here.

Herbalife Ltd. (NYSE: HLF) is down -12.7% at $46.02. The nutrition products company flubbed some questions at last night’s conference call. More coverage here.

Stay tuned for Friday. San Francisco Fed President John Williams is giving a speech. We have noted the following events on the schedule (all times Eastern):

8:30 a.m. – Non-farm payrolls
3:00 p.m. – Treasury STRIPS

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: AES, APA, CHK, COCO, CRM, DSX, DUK, EL, GM, GMCR, HLF, KNSY, LNG, LVLT, MGM, OWW, PGR, QCOM, RGLD, SHOO, SLE, SRE, WNR, WPO, YRCW

24/7 Wall St. Closing Bell (CHK, COP, RSH, STM, AIZ, ABX, MRO, MA, AGN, AUY, TWX, CLX, RDC, RRD, MSO, IACI, FSLR, DSX, COCO, APA, OWW, WNR, CMCSA, SVNT)

Paul Ausick — Wed, 02 May 2012 20:09:45 +0000

The major US stock indexes opened lower this morning following dismal reports from Europe on manufacturing (our coverage here) and unemployment (more coverage here). The ADP report on US unemployment provided more gloomy news ahead of Friday’s official unemployment numbers (more coverage here). The US EIA petroleum inventory report helped push oil prices down (more coverage here), but the weak economic news ruled the day. Only the Nasdaq index has managed to pull into positive territory at all today, and that by less than 0.2% about an hour before closing. The US dollar index rose today, now up 0.39% at 79.130. The GSCI commodity index is up fractionally at 687.61, with commodities mostly lower on the rising dollar. Chicago wheat fell more than -4.5% to post the biggest loss of the day. WTI crude oil closed down -0.9% at $105.22/barrel, and Brent crude trades down -1.23% at $1118.19/barrel. Gold settled down -0.5% today, at $1,654.00/ounce.

The unofficial closing bells put the DJIA down nearly 11 points to 13,268.65 (-0.08%), the NASDAQ rose more than 9 points (0.31%) to 3,059.85, and the S&P 500 fell -0.25% or more than 3 points to 1,402.31.

There were several analyst upgrades and downgrades today, including Chesapeake Energy Corp. (NYSE: CHK) cut to ‘neutral’ at R.W. Baird; ConocoPhillips (NYSE: COP) cut to ‘underperform’ at BofA/ML and started as ‘overweight’ at JPMorgan; RadioShack (NYSE: RSH) raised to ‘buy’ at Auriga; STMicroelectronics NV (NYSE: STM) raised to ‘buy’ at Goldman Sachs and raised to ‘neutral’ at Citigroup; and Assurant Inc. (NYSE: AIZ) 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: Barrick Gold Corp. (NYSE: ABX) is down -2.8% at $39.30 (more coverage here); Marathon Oil Corp. (NYSE: MRO) is down -4.4% at $28.85; Mastercard Inc. (NYSE: MA) is down -0.8% at $452.14; Allergan Inc. (NYSE: AGN) is down -4.3% at $92.29; Yamana Gold Inc. (NYSE: AUY) is down -2.6% at $14.36; Time Warner Inc. (NYSE: TWX) is down -1.6% at $37.30; The Clorox Co. (NYSE: CLX) is down -3.3% at $67.74; Rowan Companies Inc. (NYSE: RDC) is up 1.3% at $34.97; R.R. Donnelley & Sons Co. (NASDAQ: RRD) is down -7% at $11.79; Martha Stewart Living Omnimedia Inc. (NYSE: MSO) is down -1.2% at $3.41; and IAC/InterActiveCorp. (NASDAQ: IACI) is up 3.3% at $50.34 after posting a new 52-week high of $52.77 earlier today.

Tomorrow we get earnings from First Solar Inc. (NASDAQ: FSLR), Diana Shipping Inc. (NYSE: DSX), Corinthian Colleges Inc. (NASDAQ: COCO), Apache Corp. (NYSE: APA), Orbitz Worldwide Inc. (NYSE: OWW), and Western Refining Inc. (NYSE: WNR) among many others.

Other standouts from today include the following stocks:

Chesapeake Energy is down -13.5% at $16.95 after posting a new 52-week low of $15.86 earlier today. The natural gas producer reported weak results and more troubles for CEO Aubrey McClendon. More coverage here.

Comcast Corp. (NASDAQ: CMCSA) is down -1% at $30.29. The cable company reported good earnings this morning. More coverage here.

Savient Pharmaceuticals Inc. (NASDAQ: SVNT) is down -18.8% at $1.51. An analyst has said that the company insolvent. More coverage here.

Stay tuned for Thursday. Philadelphia Fed President Charles Plosser, Atlanta Fed President Dennis Lockhart, and San Francisco Fed President John Williams are speaking at a conference. We have noted the following events on the schedule (all times Eastern):

7:30 a.m. – Challenger job cut report
8:30 a.m. – New claims for unemployment benefits
8:30 a.m. – Productivity and costs report
10:00 a.m. – ISM non-manufacturing index
10:30 a.m. – EIA weekly natural gas storage report
4:30 p.m. – Federal Reserve balance sheet and money supply

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: ABX, AGN, AIZ, APA, AUY, CHK, CLX, CMCSA, COCO, COP, DSX, FSLR, IACI, MA, MRO, MSO, OWW, RDC, RRD, RSH, STM, SVNT, TWX, WNR

Refining Sector Woes Going From Challenging To Worse (TSO, VLO, MPC, WNR, CVI, XOM, CVX, COP, BP)

Paul Ausick — Thu, 05 Jan 2012 17:45:21 +0000

One of the largest crude oil refiners in the US, Tesoro Corp. (NYSE: TSO), this morning lowered its earnings guidance for the fourth quarter, projecting a loss of -$0.55 to -$0.80. The consensus estimate for Tesoro had been for EPS of $0.70. Shares are down about -7% in the first half hour of trading, and other independent refiners like Valero Energy Corp. (NYSE: VLO), Marathon Petroleum Corp. (NYSE: MPC), Western Refining Inc. (NYSE: WNR), and CVR Energy Inc. (NYSE: CVI) are also getting taken down. Major integrated companies like Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), ConocoPhillips (NYSE: COP), and BP plc (NYSE: BP) are also down, but by very much less.

In its announcement Tesoro pointed out the obvious problem:

The discount of WTI to Brent during the fourth quarter narrowed by $18/bbl, dropping from $26/bbl at the end of September to $8/bbl at the end of December. This market price movement impacts fourth quarter results in two ways. First, by reducing benchmark margins at our refineries that run WTI-priced barrels and, second, by reducing the margin on long-haul foreign crude oil barrels indexed to WTI.

Every independent refiner will get hit by this to some degree and we’ve taken a look at what the impact on each might be.

Valero is expected to post EPS of $0.84 in the fourth quarter. The country’s largest refiner owns 16 refineries with a daily throughput volume of 3 million barrels. It is also one of the world’s largest makers of ethanol. Half the refineries are located along the US Gulf Coast, and in the company’s latest investor presentation, WTI margins had fallen from around $26/barrel to around $15/barrel. The company’s Brent margins have stayed relatively flat, at around $10-$11/barrel. To counteract that somewhat, Valero expects to refine about 75,000 barrels/day from the Eagle Ford shale play in the first quarter of 2012. The company is also planning to expand its distillate production to capture the higher margins available from diesel fuel, especially in Europe. Valero hasn’t said anything yet about its fourth quarter earnings, but the company’s stock is down nearly -4% on Tesoro’s report. If Valero revises its earnings estimate — which is likely — another drop of at least that amount is likely.

Marathon completed its spin-off from parent Marathon Oil Corp. (NYSE: MRO) last June. The company owns six refineries and 51% of the company’s crude supply comes from either the US or Canada. The company’s WTI-Brent differential was nearly $23/barrel in the third quarter of this year compared with less than $3.50/barrel in 2010. No data is available for the fourth quarter, but it’s difficult to see how Marathon can avoid getting caught in the same bind as Tesoro and Valero.

Western Refining owns two refineries with a total throughput of 151,000 barrels/day. The company’s operating margin through the first three quarters of 2011 is around $20/barrel. All of Western’s crude is domestically sourced and priced as WTI. This is a nice advantage when Brent pricing is more than $25/barrel higher, but as the differential narrows, Western has to come up with some other way to make profits. This company could get stung badly on WTI pricing.

CVR Energy owns two refineries with a combined throughput of 185,000 barrels/day. Both are located in the Midwest and about 75% of the feedstock is domestically sourced WTI. CVR gets some portion of its feedstock from the Bakken area, which gives the company an additional break on crude pricing because Bakken crude trades at a small discount to WTI. Rising WTI prices will certainly hurt margins for CVR, but probably not as badly as the narrower differential will hurt other refiners.

One last word about Conoco, which is planning to spin-off its refining operations into a separate company. The spin-off was set to happen by mid-2012, but unless refining margins return to what they were last summer, Conoco might have a hard time convincing investors that they’re getting a good deal from the split.

Paul Ausick

Filed under: Earnings Warning, Oil & Gas Tagged: BP, COP, CVI, CVX, MPC, TSO, VLO, WNR, XOM

Small Caps With 50% Upside in 2012 (TEN, WNR, APO, SNV, MTZ)

Administrator — Tue, 27 Dec 2011 11:45:44 +0000

2011 is all but gone and research firms are handing out their top picks for 2012. We have been reviewing some of the “Small Cap Stocking Stuffers” from the top small cap ideas for 2012 generated by Credit Suisse and it turns out that some of the stock picks are expected to have upside of 50% or more in the year ahead. The $1.0 to $2.5 billion in market capitalization is called the Small Cap Sweet Spot by Credit Suisse, and the firm’s Favorite Ideas list in this value range features the following: Tenneco Inc. (NYSE: TEN), Western Refining Inc. (NYSE: WNR), Apollo Global Management, LLC (NYSE: APO), Synovus Financial Corporation (NYSE: SNV), and MasTec Inc. (NYSE: MTZ).

Other new additions to this were made but the rest did not have an implied 50% upside. We have offered details on each.

Tenneco Inc. (NYSE: TEN) is in the auto components sector and sports a $1.8 billion market capitalization rate. The stock trades at $29.97 and the firm’s price target is $53.00 as a growth pick, well above the Thomson Reuters consensus price target of $45.10. This gives implied upside of over 70%, but keep in mind that the firm added it to the Top Picks list in June when shares were around $37.50.

Western Refining Inc. (NYSE: WNR) is in the Oil and Gas Refining sector and at $13.29, it has a price target of $20.50 at Credit Suisse and a consensus price target from Thomson Reuters of $18.75. This pick was newly added in December to its best ideas list with an “Outperform” rating and was listed as a value pick.

Apollo Global Management, LLC (NYSE: APO) may seem like a surprise since it is in private equity. Credit Suisse’s $1.5 billion pick in market capitalization currently has a unit price of $12.30 and a market cap of about $1.5 billion. The firm expects that its shares will trade up to $21.00 versus a Thomson Reuters consensus target of $17.77. This pick was added in December with an “Outperform” rating as a value pick and leaves an implied 70% upside if the firm’s projections were correct.

Synovus Financial Corporation (NYSE: SNV) wa surprising to see on the list since very few investors are willing to enter the troubled sector. The market value for this regional banking outfit is currently $1.15 billion based upon a $1.46 share price. This was added as an “Outperform” rating as a value pick in December when shares were about $1.35, but the price target objective from Credit Suisse is $2.25. That leaves 52% upside remaining and the Thomson Reuters price target is also at $2.10.

MasTec Inc. (NYSE: MTZ) is valued at $1.48 billion in the Construction & Engineering sector. The current price of $17.48 leaves “only” 37% implied upside to Credit Suisse’s $24.00 price target. The reason for this inclusion is that the most recent price on the updated list was at $15.11 and that was above the 50% threshold even if this is under the price when added to the best ideas list in September as a growth pick.

JON C. OGG

Filed under: Analyst Calls, Value Investing Tagged: APO, MTZ, SNV, TEN, WNR

24/7 Wall St. Closing Bell (LULU, CLF, DPZ, WNR, SINA, GES, BIG, ZUMZ, RY, BNS, YRCWD, WDC, RIMM, THC, JASO)

Paul Ausick — Fri, 02 Dec 2011 21:12:02 +0000

Stocks got off to a good start this morning following the Labor Department’s report on non-farm payrolls, up slightly less than expected at 120,000 new jobs, and an unexpected drop in US unemployment from 9% to 8.6%. Also supporting prices this morning was news that the European Central Bank would lend 100-200 million euros to the IMF to hand out to debtor nations in the Eurozone. Gains peaked in the early morning and have remained up only modestly since about noon. The dollar strengthened against both the euro and the yen, keeping gains for both crude oil and gold at under 1%. Crude oil is trading at $100.83/barrel and gold is trading at $1,747.10/ounce just before today’s close.

The unofficial closing bells put the DJIA down less than 1 point to 12,019.42 (-0.01%), the NASDAQ rose less than 1 point (0.03%) to 2,626.93, and the S&P 500 fell 0.02% or less than 1 point to 1,244.28. Folks, that’s flat!

There were several analyst upgrades and downgrades today, including Lululemon Athletica Inc. (NASDAQ: LULU) raised to ‘buy’ at KeyBanc. Other ratings action Cliffs Natural Resources Inc. (NYSE: CLF) raised to ‘outperform’ at Credit Suisse; Domino’s Pizza Inc. (NYSE: DPZ) started as ‘hold’ at KeyBanc; Western Refining Inc. (NYSE: WNR) raised to ‘outperform’ at Credit Suisse; Sina Corp. (NASDAQ: SINA) raised to ‘buy’ at Deutsche Bank; and Guess? Inc. (NYSE: GES) cut to ‘neutral’ at Citigroup.

Here are today’s big post-earnings news reactions with prices during the last half-hour of trading:
Big Lots, Inc. (NYSE: BIG) is down -8.6%% at $36.34; Zumiez Inc. (NASDAQ: ZUMZ) is up 23.9% at $28.95; Royal Bank of Canada (NYSE: RY) is up 3.4% at $47.82; and Bank of Nova Scotia (NYSE: BNS) is down -3.1% at $48.08.

Several other standouts from today are as follows…

YRC Worldwide Inc. (NASDAQ: YRCWD) is up 29.7% at $12.61. The freight hauler concluded a 1-for-300 reverse split that drove the share price to $9 from $0.03.

Western Digital Corp. (NYSE: WDC) is up about 7% at $31.30. The computer disk drive maker announced that it was resuming operations at one of its flooded Thai plants and raised its revenue estimate for the current quarter. More details here.

Research in Motion Ltd. (NASDAQ: RIMM) is down about -9.6% at $16.79. The smartphone and tablet maker announced an inventory writedown of $485 million for unsold PlayBook tablets and said that full-year earnings would be lower. Detailed coverage here.

Tenet Healthcare Corp. (NYSE: THC) is down more than -10% at $4.20. The health care facilities operator likely is suffering from a lowered target price from BMO Capital Markets with rating of ‘market perform’.

JA Solar Holdings Co. Ltd. (NASDAQ: JASO) is down nearly -7% at $1.74. The solar PV maker is likely giving back gains made over the past two days. The was little reason for the gain in the first place, so that investors are taking it back should be no surprise.

Stay tuned for Monday. We have noted a speech due from Chicago Federal Reserve President Charles Evans and short-term Treasury bill auctions in the morning. Here are other noteworthy events scheduled for Monday (all times Eastern):

10:00 a.m. – Census Bureau factory orders report
10:00 a.m. – Industrial Supply Management non-manufacturing index

Have a great weekend.

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: BIG, BNS, CLF, DPZ, GES, JASO, LULU, RIMM, RY, SINA, THC, WDC, WNR, YRCWD, ZUMZ

Top Analyst Upgrades & Downgrades (ACI, AMT, BRK-B, CLF, CCI, DE, DPZ, GES, LOW, LULU, SINA, SNN, WNR, WAG, SLF, WPI, TEVA)

Administrator — Fri, 02 Dec 2011 13:19:44 +0000

These are some of the top analyst upgrades, downgrades, and initiations seen from Wall Street research calls this Friday morning.

Arch Coal, Inc. (NYSE: ACI) named as Bear of the Day with a $13.00 price target at Zacks.
American Tower Corporation (NYSE: AMT) Started as Outperform at Macquarie.
Berkshire Hathaway Inc. (NYSE: BRK.B) named as Bull of the Day with a $91.00 price target at Zacks.
Cliffs Natural Resources Inc. (NYSE: CLF) Raised to Outperform at Credit Suisse.
Crown Castle International Corporation (NYSE: CCI) Started as Outperform at Macquarie.
Deere & Company (NYSE: DE) named as value stock of the day at Zacks.
Domino’s Pizza, Inc. (NYSE: DPZ) Started as Hold at KeyBanc.
Guess? Inc. (NYSE: GES) Cut to Neutral at Citigroup.
Lowe’s Companies Inc. (NYSE: LOW) Raised to Buy at Goldman Sachs.
Lululemon Athletica Inc. (NASDAQ: LULU) Raised to Buy at KeyBanc.
Sina Corporation (NASDAQ: SINA) Raised to Buy at Deutsche Bank
Smith & Nephew plc (NYSE: SNN) Raised to Overweight at Morgan Stanley.
Western Refining Inc. (NYSE: WNR) Raised to Outperform at Credit Suisse.

Argus made changes to its institutional model portfolio: added shares of Walgreen Co. (NYSE: WAG) and sold out of shares of Sun Life Financial Inc. (NYSE: SLF).

Credit Suisse is out positive on generics saying that the news flow on generic Lipitor has obscured the bigger picture on Watson Pharmaceuticals, Inc. (NYSE: WPI) and Teva Pharmaceutical Industries Limited (NASDAQ: TEVA). The firm recommends buying WPI after its recent weakness as strong fundamentals just got cheaper. It also recommends buying TEVA for the longer term and as a turnaround story for 2012.

JON C. OGG

Filed under: Analyst Calls Tagged: ACI, AMT, BRK-B, CCI, CLF, DE, DPZ, GES, LOW, LULU, SINA, SLF, SNN, TEVA, WAG, WNR, WPI

Pipeline Reverses Refiners Fortunes… An Apparent Overreaction (ENB, COP, VLO, MPC, TSO, WNR, CVI, XOM, CVX, BP, EPD, TRP, RDS-A)

Paul Ausick — Thu, 17 Nov 2011 14:10:49 +0000

The announcement from Enbridge Inc. (NYSE: ENB) that it would acquire the 50% stake in the Seaway pipeline system owned by ConocoPhillips Corp. (NYSE: COP) and reverse the pipeline’s flow direction, pushed up the price of WTI crude yesterday and pushed down the share price of US refining stocks.

Valero Energy Corp. (NYSE: VLO) shares closed down more than -9% on the day. Marathon Petroleum Corp. (NYSE: MPC) closed down nearly -12%, Tesoro Corp. (NYSE: TSO) closed down nearly -10%, and Western Refining Inc. (NYSE: WNR) was off -13.5%. CVR Energy, Inc. (NYSE: CVI) shares plunged more than -16%.

The major integrated oil companies with refining operations also experienced a down day, with Exxon Mobil Corp. (NYSE: XOM) off about -1%, Conoco down about -3%, Chevron Corp. (NYSE: CVX) down about -2%, and BP plc (NYSE: BP) down about -0.5%.

All this carnage over a 150,000 barrel/day pipeline that currently carries almost no oil from the Gulf Coast to the storage tanks at Cushing, Oklahoma, and will not be reversed until sometime later next year. The US consumes about 9 million barrels/day of crude just for transportation use, so less than 2% of that crude should not have such an outsized effect on refiner stocks.

The Seaway pipeline transaction, the other 50% of which is owned by Enterprise Products Partners L.P. (NYSE: EPD), was merely the trigger. Refiners’ profits have been strong in recent months as those with access to WTI and cheaper crudes have been able to price the refined output based on Brent crude input costs. The differential once reached nearly $28/barrel. The price difference closed to about $11/barrel yesterday and is around $8/barrel this morning.

Brent prices are falling, but not as fast as WTI prices are rising. The reversal of the Seaway pipeline means that landlocked WTI can now get to the Gulf Coast refineries where it will be priced the same as Brent. As the two crude prices converge, refiners will not be able to feast off that differential.

Another factor weighing against the refiners is the start-up of the Bakken Oil Express, a tank-car train running from North Dakota to Louisiana. The first train-load of crude left North Dakota on November 7th with 70,000 barrels, with current rail capacity of 100,000 barrels/day expected to increase to 250,000 barrels/day. Rail transport of crude and refined products has risen by more than 9% in the past year, to about 7,600 tank-cars/week.

The price of Brent is falling because production from Libya has ramped quickly, to reach about 700,000 barrels/day already, more than half its total production before the upheaval of last Spring. Full production of 1.3 million barrels/day could be reached before mid-2012, again keeping downward pressure on Brent pricing.

The final factor pushing WTI prices up is the tentative agreement between TransCanada Corp. (NYSE: TRP) and the state of Nebraska on a new route for the Keystone XL pipeline from Canada to the Gulf Coast. This pipeline could carry up to 1.1 million barrels/day when (if) it is built. Because Canada’s synthetic crude is priced even lower than WTI, getting this pipeline into service is critical to oil sands producers who want to see the differential between synthetic crude and WTI/Brent close if not disappear altogether.

TransCanada has said that it is considering moving ahead with the section of the Keystone XL that runs from Cushing to the Gulf Coast and Enterprise has said that it will scrap plans for a new pipeline from Cushing to the Gulf but now plans to expand the Seaway pipeline to as much as 400,000 barrels/day by 2013. The two pipelines combined could carry nearly 1 million barrels/day from Cushing to the Gulf.

That million barrels represents crude that would not need to be imported by ship to the Gulf, but rather than lowering crude prices, it would raise them. That raises refiners’ input costs and raises the price of gasoline at the pump for consumers.

BP and Royal Dutch Shell plc (NYSE: RDS-A) probably stand to gain the most of any of the integrated oil companies from the new outlets to the Gulf. Shell is a big producer from the oil sands and BP is upgrading its refinery in Indiana to process the heavy Canadian synthetic crude, as well as owning production properties in the US midwest.

Refiners’ stocks are likely to take more losses today, though not as bad as the beating they got yesterday. Big oil companies could lose a bit more today, but the rising price for crude more than offsets any hits to their refining operations.

Paul Ausick

Filed under: Infrastructure, Oil & Gas Tagged: BP, COP, CVI, CVX, ENB, EPD, MPC, RDS-A, TRP, TSO, VLO, WNR, XOM

24/7 Wall St. Closing Bell (DELL, DKS, RIMM, ATVI, TIBX, ZOOM, ANF, TGT, SPB, VLO, WNR, MPC, NG, PEIX, ASYS, UNIS)

Paul Ausick — Wed, 16 Nov 2011 21:08:49 +0000

The markets opened lower this morning and not until mid-afternoon were equities able to put a mark above yesterday’s close. European stocks traded mixed all day, and that coupled with rising crude prices could have held the markets in check. Crude prices are upmore than 3% so far today, at about $102.55 for WTI crude. The good news is that the spread between WTI and Brent has narrowed to $9/barrel. Because US gasoline prices are now pegged to Brent, pump prices could rise only moderately as WTI continues to close the gap. The dollar is a bit stronger today as well, leading to lower prices among commodities, with wheat off by about -2.5%.The unofficial closing bells put the DJIA down more than 190 points to 11,905.19 (-1.57%), the NASDAQ fell more than 46 points (-1.73%) to 2,639.61, and the S&P 500 fell about -1.66% or nearly 21 points to 1,236.92.There were several analyst upgrades and downgrades today, including Dell Inc. (NASDAQ: DELL), which was maintained at ‘underperform’ at Credit Suisse and reiterated at ‘buy’ with a $22 price target at Argus. Other action included Dick’s Sporting Goods, Inc. (NYSE: DKS) added to the Conviction Buy list at Goldman Sachs; Research in Motion Ltd. (NASDAQ: RIMM) raised to ‘neutral’ at Goldman Sachs; Activision Blizzard Inc. (NASDAQ: ATVI) reiterated as ‘buy’ with an $18 price target at Argus; and TIBCO Software Inc. (NASDAQ: TIBX) started with ‘market perform’ by BMO Capital and as ‘outperform’ at JMP Securities.Here are today’s big post-earnings news reactions with prices during the last half-hour of trading: Dell Inc. is down about -3%, at $15.16; Zoom Technologies Inc. (NASDAQ: ZOOM) is down about -19%, at $1.39; Abercrombie & Fitch Co. (NYSE: ANF) is down about -14.7%, at $47.50; Target Corp. (NYSE: TGT) is down about -0.1%, at $53.11; and Spectrum Brands Holdings Inc. (NYSE: SPB) is down -7.8%, at $23.39. We covered Target, Spectrum, and A&F earnings earlier today.

Several other standouts from today are as follows…

Valero Energy Corp. (NYSE: VLO) is down nearly -9%, at $22.67. Valero and other refiners’ stocks got hit with a narrowing of the gap between WTI and Brent crudes, as well as an announcement by Enbridge Inc. (NYSE: ENB) that it is buying a 50% stake in the Seaway pipeline from ConocoPhillips Corp. (NYSE: COP) and reversing the pipeline’s flow to carry 150,000 barrels/day of crude from Cushing, Oklahoma, to the Gulf Coast.

Western Refining Inc. (NYSE: WNR) is down more than -13%, at $13.47, and Marathon Petroleum Corp. (NYSE: MPC) is down about -11%, at $32.91.

Novagold Resources Inc. (AMEX: NG) is up more than 23.5%, at $10-.89. The company has appointed a new CEO to start in January and also announced that it would spin-off a subsidiary, NovaCopper, to current NovaGold shareholders.

Pacific Ethanol Inc. (NASDAQ: PEIX) is up more than 3%, at $1.37. The company announced that it has fully retired $35 million in senior convertible notes.

Amtech Systems Inc. (NASDAQ: ASYS) is down more than -17%, at $8.59. The company issued a statement that it expects to post $21-$23 million in sales for the third quarter, where analysts had been expecting revenue of $50 million.

Unilife Corp. (NASDAQ: UNIS) is down about -12.5%, at $4.17. The company priced a secondary stock offering of 8.25 million shares at $4.35, well below yesterday’s closing price of $4.76.

Stay tuned for Thursday. Cleveland Federal Reserve Bank president Sandra Pianalto and New York Fed president William Dudley are giving speeches tomorrow afternoon. Here’s a list of other noteworthy events (all times Eastern):

8:30 a.m. – Housing starts
8:30 a.m. – Initial unemployment benefits claims
10.00 a.m. – Philadelphia Federal Reserve Bank’s October business outlook survey
10:00 a.m. – E-commerce retail sales
10:30 a.m. – EIA weekly natural gas status report
1:00 p.m. – 10-year TIPS auction
4:30 p.m. – Federal Reserve balance sheet and money supply report

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: ANF, ASYS, ATVI, DELL, DKS, MPC, NG, PEIX, RIMM, SPB, TGT, TIBX, UNIS, VLO, WNR, ZOOM

Refiners Thriving on Crude Price Differential (WNR, TSO, VLO, MPC, BP, XOM, CVX, COP, MUR)

Paul Ausick — Thu, 03 Nov 2011 15:22:03 +0000

Two major oil refiners have reported third-quarter earnings since the market closed last night. Both posted better-than-expected earnings primarily due to sharply higher refining margins. Western Refining Corp. (NYSE: WNR) reported net income of $84.9 million in the quarter, compared with net income of $6.9 million in the same period a year ago. The higher margins are due exclusively to the price differential between Brent crude and WTI crude.

Western reported that the price difference for the quarter was $23.45/barrel, and because the company buys crude at the WTI price and sells its refined products based on the Brent price, margins shot up. This may seem extortionate, but every major refiner does it for a very simple reason: why charge less for your product if consumers have demonstrated that they are willing to pay more?

Refiner Tesoro Corp. (NYSE: TSO) reported third-quarter EPS last night of $2.39, some $0.41 above the consensus estimate. The largest US refiner, Valero Energy Corp. (NYSE: VLO), posted EPS for the third-quarter of $2.11, well above estimates of $1.80. Marathon Petroleum Corp. (NYSE: MPC) reported EPS for the quarter of $3.16, way above estimates of $2.44. Refining margins also boosted earnings for the major integrated oil giants BP plc (NYSE: BP), Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), and ConocoPhillips Corp. (NYSE: COP).

Murphy Oil Co. (NYSE: MUR) reported EPS of $1.73, excluding discontinued operations, compared with a consensus estimate of $1.18. The company attributed the increase to higher prices for its crude production and higher refining margins. Exploration & production revenue rose about 40%, while refining & marketing revenue rose more than 52%.

The average price of a gallon of gasoline in the US on October 31st was about $3.45, almost $0.65/gallon more than at the same time last year. On the same day, the spot price of a barrel of WTI crude was $93.19 and the spot price of a barrel of Brent crude was $108.43. On the same date one year ago, the WTI crude spot price was $81.45/barrel and the Brent crude spot price was $82.47. A gallon of regular gasoline cost about $2.82 at the end of October 2010.

The current differential between WTI and Brent is $15.24. That amount goes straight to a refiner’s top line, and puts a nice positive gain on the bottom line. Even cheaper varieties of crude, such as the heavier and more sulfurous Saudi crudes, are available and the differentials are even wider though most imported crudes are indexed to the Brent spot price. Still, every barrel that is refined in the US yields products that are priced to consumers as if the crude input were a barrel of Brent.

The Brent spot price is expected to drop as production resumes from Libya. Libya’s light, sweet crude is comparable to Brent, and the International Energy Agency expects Libyan production to grow to 600,000 barrels/day by the end of this year. OPEC has estimated that the country’s former production of about 1.3 million barrels/day could be back on-line by late next year. That will continue to moderate the Brent spot price and the differential to WTI.

The price differential between WTI and Brent is closing, if slowly, and gasoline prices should continue to fall, even if more slowly. That’s good news for US drivers and could be the best holiday gift for the weak US economy.

Paul Ausick

Filed under: Earnings, Oil & Gas Tagged: BP, COP, CVX, MPC, MUR, TSO, VLO, WNR, XOM