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Closing Bell for Thursday on Wall Street: Markets Rise to New Highs on Jobs Report

Paul Ausick — Fri, 03 May 2013 20:04:48 +0000

U.S. equity markets opened higher this morning following upward revisions from the Bureau of Labor Statistics on non-farm payrolls in February and March and a larger-than-expected rise in payrolls in April (more coverage here). The S&P 500 index topped 1,600 and the DJIA rose to a new high above 15,000 following the news (more coverage here). Even a weaker report on factory orders couldn’t hold back the enthusiasm (more coverage here). In Europe, the producer price index fell in line with expectations and the U.K.’s PMI rose a bit more than expected. In Asia, China’s non-manufacturing PMI fell, while Australia’s producer price index rose more than expected. But all the really good economic news came from the U.S. and markets responded in kind.

The U.S. dollar index is trading down 0.14% today, now at 82.105. The GSCI commodity index is up 1.9% at 622.62. WTI crude oil closed up 1.7%, at $95.61 a barrel to close the week with a gain of 2.8%. Brent crude trades up 1.4% at $104.29 a barrel. Natural gas is up 0.6% today at about $4.05 per million BTUs. Gold settled down 0.2% today at $1,464.20 an ounce and closed the week up 0.7%.

The unofficial closing bells put the DJIA up more than 141 points to 14,972.81 (0.95%), the NASDAQ rose about 38 points (1.14%) to 3,378.63, and the S&P 500 rose 1.05% or nearly 17 points to 1,614.34.

There were a several analyst upgrades and downgrades today, including:

Allstate Inc. (NYSE: ALL) raised to “Conviction Buy” list at Goldman Sachs;
Western Refining Inc. (NYSE: WNR) raised to ‘outperform’ at Credit Suisse;
AngloGold Ashanti Ltd. (NYSE: AU) cut to ‘sell’ at Goldman Sachs;
Sysco Corp. (NYSE: SYY) cut to ‘sell’ at Cantor Fitzgerald; and
MBIA Inc. (NYSE: MBI) cut to ‘strong sell’ at S&P Capital IQ.

Earnings reports since markets closed last night resulted in some price moves today, including these as of the last half hour of trading:

American International Group Inc. (NYSE: AIG) is up 6.1% at $44.69 after posting a new 52-week high of $44.90 earlier today;
Gilead Sciences Inc. (NASDAQ: GILD) is up 5.8% at $55.18 after posting a new 52-week high of $56.35 earlier today;
Kraft Foods Group Inc. (NASDAQ: KRFT) is up 5.1% at $53.11 after posting a new 52-week high of $54.10 earlier today;
LinkedIn Corp. (NYSE: LNKD) is down 13.3% at $174.82 (more coverage here);
SunPower Corp. (NASDAQ: SPWR) is down 2.4% at $14.93 (more coverage here);
Automatic Data Processing Inc. (NYSE: ADT) is up 2.7% at $69.21, a new 52-week high; and
Duke Energy Corp. (NYSE: DUK) is down 0.5% at $74.41.

Before markets open Monday morning we are scheduled to hear earnings reports from Apollo Global Management LLC (NYSE: APO), Bridgepoint Education Inc. (NYSE: BPE), Sysco Corp. (NYSE: SYY), and Westlake Chemical Corp. (NYSE: WLK).

Some standouts among heavily traded stocks today include:

Arena Pharmaceuticals (NASDAQ: ARNA) is down 9% at $7.64. The drug maker has withdrawn its application for approval of a weight-loss drug in Europe. More coverage here.

American Capital Agency Corp. (NASDAQ: AGNC) is down 8.1% at $30.42. The mortgage REIT reported terrible results after markets closed last night.

Weatherford International Inc. (NYSE: WFT) is up 8.3% at $13.74. The oil field services company expects a profit boost from its Mexican operations.

Stay tuned for Monday. We have noted the following events on the schedule (all times Eastern):

11:30 a.m. – 3- and 6-month bill auctions
3:00 p.m. – Treasury STRIPS

Have a great weekend!

Filed under: 24/7 Wall St. Wire, HI/LOW, Market Close Tagged: ADP,, AGNC, AIG, ALL, APO, ARNA, AU, BPE, DUK, GILD, KRFT, LNKD, MBI, SPWR, SYY, WFT, WLK, WNR

Top Wall Street Analyst Upgrades: AllState, Cubist, Beazer and More

Jon C. Ogg — Fri, 03 May 2013 12:35:22 +0000

Investors and traders are constantly looking for fresh research ideas from Wall Street that will lead to higher income or more profits. We review many fresh research calls to find great ideas from value stocks to growth stocks to dividend stocks. We are breaking out the positive analyst calls as far as stocks to buy and positive research calls today. These are some of this Friday’s top analyst upgrades, initiations and positive analyst research calls seen from Wall Street today.

AllState Inc. (NYSE: ALL) was kept as Buy but was raised to the prized Conviction Buy List at Goldman Sachs.

Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL) was raised to Equal Weight from Underweight at Morgan Stanley.

Beam Inc. (NYSE: BEAM) was raised to Market Perform from Underperform at Citigroup.

Beazer Homes USA Inc. (NYSE: BZH) was raised to Overweight from Neutral at J.P. Morgan, and it also was raised to Market Perform from Underperform at JMP Securities.

Boulder Brands Inc. (NASDAQ: BDBD) was reiterated Buy with a $13 price target as its natural food strength continues, according to Canaccord Genuity.

Carbonite Inc. (NASDAQ: CARB) was reiterated Buy after earnings were evidence of a logical business strategy shift toward small and mid-sized businesses, according to Canaccord Genuity.

The Chefs’ Warehouse (NASDAQ: CHEF) was reiterated Buy and its target was raised to $20 from $19 as its acquisition strategy adds at the same time that organic growth steps up, according to Canaccord Genuity,

CNOOC Ltd. (NYSE: CEO) was raised to Buy from Neutral at UBS.

ComScore Inc. (NASDAQ: SCOR) was raised to Buy from Hold at Cantor Fitzgerald.

Cubist Pharmaceuticals Inc. (NASDAQ: CBST) was initiated with a Buy rating at UBS.

Magellan Midstream Partners L.P. (NYSE: MMP) was raised to Outperform from Neutral at Credit Suisse.

Western Refining Inc. (NYSE: WNR) was raised to Outperform from Neutral at Credit Suisse.

Jefferies identified the top oil service stocks to buy after the sector has been hit hard.

Here are the top analyst downgrades and cautious calls from Wall Street analysts.

Filed under: Active Trader, Analyst Calls, Value Investing Tagged: ALL, AUXL, BDBD, BEAM, BZH, CARB, CBST, CEO, CHEF, MMP, SCOR, WNR

Outlook Remains Rosy for Refiners (TSO, MPC, PSX, ALJ, WNR, CVI, VLO, DK, HFC, HES)

Paul Ausick — Thu, 21 Feb 2013 13:00:32 +0000

Share prices appreciated by at least 80% for most major crude oil refiners in 2012, a far better performance than turned in by the integrated oil companies, the oil services firms and, saints preserve us, natural gas producers.

Tesoro Corp. (NYSE: TSO), Marathon Petroleum Corp. (NYSE: MPC), Phillips 66 (NYSE: PSX), Alon USA Energy Inc. (NYSE: ALJ), Western Refining Inc. (NYSE: WNR), CVR Energy Inc. (NYSE: CVI) and Valero Corp. (NYSE: VLO) have all experienced share price gains of around 80% or higher in the past 12 months.

Delek US Holdings Inc. (NYSE: DK) Delek shares are up 175%. The laggard is HollyFrontier Corp. (NYSE: HFC), up just 62% in the past 12 months.

Each of these companies has figured out a way to take advantage of the wide difference between West Texas Intermediate (WTI) crude and Brent crude, which this morning sits at around $20 a barrel. Refining the cheaper WTI and selling the resulting fuel at the same price as if it were refined from Brent crude makes all the difference. How long can this last?

At least another year, maybe longer, for a couple of simple reasons. First, the mid-American pricing point at Cushing, Okla., is full to the brim and there is still relatively little pipeline transportation out of Cushing to the Gulf Coast, the center of U.S. refining. New pipelines, even if approved, will not be in service until later this year, at the earliest.

The second reason is not so simple, but worth noting. And like real estate, it is all about location, location, location. The heavily populated states along the Atlantic coast are driving the price of U.S. gasoline. The cost basis for East Coast gasoline is Brent, regardless of what kind of crude is actually used. In most cases, the crude is Brent because there is no easy way to get crude from North Dakota or Canada to the East Coast.

The refinery closures in the east have contributed to a short supply of gasoline, and the difference is being made up by gasoline imports from Europe. Again, based on the price of Brent crude with the added expense of transportation across the Atlantic. European refiners then are bidding up the spot price for Brent in order to acquire crude to refine and send the products off to New York.

East Coast gasoline inventories are low, which results in higher prices for immediate deliveries than for future deliveries, a commodity market condition known as backwardation. Any rumor or news or indication only magnifies the backwardation effect, even if only temporarily.

The AAA Daily Fuel Gauge this morning indicates that the average price of gasoline today is $3.778 a gallon, about $0.15 higher than a week ago. Gasoline supplies on the East Coast are expected to be tight this summer, especially given the recent closure of the Hess Corp. (NYSE: HES) refinery in New Jersey. Until inventories increase on the East Coast, all refiners, whether in Europe or the United States, are very likely to continue making handsome profits and the share prices are likely to continue rising.

Filed under: 24/7 Wall St. Wire, Oil & Gas Tagged: ALJ, CVI, DK, HES, HFC, MPC, PSX, TSO, VLO, WNR

Refiners Riding Valero’s Coattails

Paul Ausick — Tue, 29 Jan 2013 19:05:33 +0000

BP, Texas City refineryWhen oil refiner Valero Energy Corp. (NYSE: VLO) reported a big earnings beat this morning, it was almost inevitable that the halo would also appear above the other major refining stocks. And so it has, with competitor Tesoro Corp. (NYSE: TSO) even setting a new 52-week high of its own today. Phillips 66 (NYSE: PSX) is up more than 5%, as are HollyFrontier Corp. (NYSE: HFC), Western Refining Inc. (NYSE: WNR), and Marathon Petroleum Corp. (NYSE: MPC). And all these have already posted new 52-week highs as well.

Valero was the first to report earnings, so the best may be yet to come here. Here’s a look at what’s ahead.

Marathon Petroleum reports tomorrow and fourth-quarter EPS is forecast at $2.10 on revenues of $19.07 billion. The EPS estimate is up $0.46 in the past three months and the consensus price target on the shares is around $76.20. Shares are trading today at about $72.

Phillips 66 also reports tomorrow and fourth-quarter EPS is forecast at $1.68 on revenues of $46.03 billion. The estimate has risen by $0.10 in the past 90 days and the consensus price target on the stock is around $64.40. Shares are trading today at about $60.

Tesoro reports earnings on February 6th and EPS is estimated at $1.37 on revenues of $6.95 billion. The estimate has risen $0.15 a share in the past three months and the consensus price target is around $54.20. Shares are trading today at about $49.

HollyFrontier is scheduled to report on February 26th and the consensus estimate calls for EPS of $2.26 on revenues of $4.93 billion. The earnings estimate has grown by a whopping $0.74 in the past 90 days and the consensus price target on the stock is around $53.30. Shares are trading today at about $50.55.

Western Refining is scheduled to report earnings on February 28th and the consensus estimate calls for EPS of $1.37 on revenues of $$2.31 billion. The earnings estimate is up $0.30 in the past three months and the consensus price target is $34. Shares are trading today at nearly $32.

There are no big value plays here, but keep an eye on the price differential between WTI and Brent crudes, which has dropped below $16 a barrel. Most of these refiners benefit from a lower WTI price and a wider spread. But there’s still room for all of them to keep profits rolling in.

Filed under: 24/7 Wall St. Wire, Earnings, HI/LOW, Oil & Gas Tagged: HFC, MPC, PSX, TSO, VLO, WNR

A Value Opportunity: Refining Stocks Go for the Glory (VLO, MPC, PSX, TSO, WNR, HFC)

Paul Ausick — Wed, 03 Oct 2012 17:02:58 +0000

It’s been a good year for refining stocks. Six large independent refiners are posting 12-month gains of between about 40% and 140%. All six — Valero Energy Corp. (NYSE: VLO), Marathon Petroleum Corp. (NYSE: MPC), Phillips 66 (NYSE: PSX), Tesoro Corp. (NYSE: TSO), Western Refining Inc. (NYSE: WNR), and HollyFrontier Corp. (NYSE: HFC) — posted those 52-week highs in the last two to three weeks.

Here’s a quick look at these stocks, with an eye toward whether or not the next 12 months will be as kind to investors as the past 12 have been. About three months ago, these stocks had implied gains of between 25% and 45%. Those gaps have been only partially closed.

Valero Energy Co. (NYSE: VLO) traded at $31.90 and has a market value of about $17.6 billion. The consensus target price from Thomson Reuters is $38.53 and the 52-week range is $17.77 to $34.66. Valero has a dividend yield of 2.2%. The implied upside to the consensus target is 21%, and the target price is well above the 52-week high.

Marathon Petroleum Corp. (NYSE: MPC) traded at $54.80 and has a market value of about $18.5 billion. The consensus target price from Thomson Reuters is $62.36 and the 52-week range is $28.53 to $56.22. Marathon has a dividend yield of 2.5%. The implied upside to the consensus target is 14%, and again the target price is above the 52-week high.

Phillips 66 (NYSE: PSX) traded at $45.20 and has a market value of about $28.3 billion. The consensus target price from Thomson Reuters is $50.64 and the post-IPO range is $28.75 to $48.22. Phillips 66 has a dividend yield of 1.7%. The implied upside to the consensus target is 12%, and the target price is above the 52-week high.

Tesoro Corp. (NYSE: TSO) traded at $42.59 and has a market value of about $6 billion. The consensus target price from Thomson Reuters is $52.47 and the 52-week range is $18.90 to $43.78. Tesoro has a dividend yield of 1.1%. The implied upside to the consensus target is 23%, and again the target price is above the 52-week high.

Western Refining Inc. (NYSE: WNR) traded at $26.40 and has a market value of about $2.4 billion. The consensus target price from Thomson Reuters is $31.51 and the 52-week range is $11.17 to $28.04. Western’s dividend yield is 1.2%. The implied upside to the consensus target is 7% and again the target price is above the 52-week high.

HollyFrontier Corp. (NYSE: HFC) traded at $39.90 and has a market cap of $8 billion. The consensus target price from Thomson Reuters is $46.06 and the 52-week range is $21.13-$42.33. HollyFrontier has a dividend yield of 1.4%. The implied upside to the consensus target is 15% and the target price is above the 52-week high.

Based on implied gain, Tesoro (23% upside) and Valero (21% upside) clearly outpace the field here. Tesoro’s ability to source crude from cheaper WTI sources has boosted its performance. Valero, with large refining operations along the Gulf Coast, has benefited from the reversal of the Seaway Pipeline, carrying crude toward the Gulf Coast rather than away from it. For a combination of upside and dividend yield, Valero gets the nod, but Tesoro could continue to forge higher as crude prices weaken.

Paul Ausick

Filed under: Commodities, Oil & Gas, Value Investing Tagged: HFC, MPC, PSX, TSO, VLO, WNR

Top Analyst Upgrades and Downgrades (AKRX, BRCM, CCL, CHK, CHA, EA, FB, GTAT, LLL, MKTX, MRVL, RSG, SNDK, TXN, RIG, WM, WNR)

Jon C. Ogg — Wed, 26 Sep 2012 12:33:06 +0000

These are some of the top analyst upgrades, downgrades and initiations seen from Wall St. research calls this Wednesday.

Akorn Inc. (NASDAQ: AKRX) started as Buy with $18 target at BofA/ML.

Broadcom Corp. (NASDAQ: BRCM) reiterated Buy with $46 target at Argus.

Carnival Corp. (NYSE: CCL) cut to Hold at Jefferies and raised to Buy at S&P Equity Research.

Chesapeake Energy Corp. (NYSE: CHK) cut to Hold at Stifel Nicolaus.

China Telecom Corp. Ltd. (NYSE: CHA) cut to Neutral at Credit Suisse.

Electronic Arts Inc. (NASDAQ: EA) cut to Neutral at BofA/ML.

Facebook Inc. (NASDAQ: FB) reiterated Neutral with $23 target at BofA/ML.

GT Advanced Technologies Inc. (NASDAQ: GTAT) cut to Hold at Canaccord Genuity.

L-3 Communications Holdings Inc. (NYSE: LLL) named as Bear of the Day at Zacks.

MarketAxess Holdings Inc.(NASDAQ: MKTX) cut to Underperform with $28 target at Credit Suisse.

Marvell Technology Group Ltd. (NASDAQ: MRVL) cut to Hold at Canaccord Genuity.

Republic Services Inc. (NYSE: RSG) started as Hold at KeyBanc.

SanDisk Corp. (NASDAQ: SNDK) cut to Market Perform at JMP Securities.

Texas Instruments Inc. (NASDAQ: TXN) cut to Perform at Oppenheimer.

Transocean Ltd. (NYSE: RIG) raised to Neutral from Sell at Goldman Sachs.

Waste Management Inc. (NYSE: WM) started as Hold at KeyBanc.

Western Refining Inc. (NYSE: WNR) named as Bull of the Day at Zacks.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Analyst Calls Tagged: AKRX, BRCM, CCL, CHA, CHK, EA, FB, GTAT, LLL, MKTX, MRVL, RIG, RSG, SNDK, TXN, WM, WNR

Oil Trends Fighting “Panic Sell” Trading

Jon C. Ogg — Tue, 18 Sep 2012 14:52:32 +0000

The unusual, and yet totally unexplained, drop in the price of oil on Monday has created some serious shake outs in the price and the trends in oil. With NYMEX WTI crude reaching to just over $100.25 on Friday, oil was still between $99.00 and $99.50 on Monday before the rug came out from under oil’s footing. Selling pressure started and then the price drop went from $98.75 down to under $96.00 in literally minutes.

Speculation was that the Obama administration was considering a tapping effort of the strategic petroleum reserve. That was effectively refuted, even if it was called an option that can be used. Then the fat-finger trading error seemed to be the cause, but the trading volume did not support the price action. Traders and market pundits have been all over the media late yesterday and this morning saying that the sell-off was not supported by the volume. Now some talk seems to be around an options expiration date in oil, but there may have been a natural inflection point as the largest culprit.

A chart review shows that there would have likely been many stop-gap and program levels hit after oil challenged $98.50 per barrel. The drop seems unusually high for such a simple explanation, but a break under $98.50 or so sure looks like it would have triggered many exits all running for the door at once.

United States Oil (NYSEMKT: USO) tanked with oil on Monday, but the exchange traded product is up over 0.3% at $35.87 in late-morning trading.

It was north noting that Credit Suisse lowered its ratings to Neutral from Outperform on the independent refining sector. The firm downgraded Delek US Holdings Inc. (NYSE: DK) and its shares fell almost 5% on the day. Marathon Petroleum Corp. (NYSE: MPC), Phillips 66 (NYSE: PSX) and Western Refining Inc. (NYSE: WNR) were all also cut to Neutral, and these are all down about 1.5% to 2.5% after the downgrades.

The integrated oil and gas giants are not quite as fast to react to oil prices. Exxon Mobil Corp. (NYSE: XOM) ticked down yesterday but shares are up 0.3% at $92.18 so far today, and it is important to realize that the year-high is only $92.50.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Active Trader, Commodities & Metals, Oil & Gas, Rumors Tagged: DK, featured, MPC, PSX, USO, WNR, XOM

Top Analyst Upgrades and Downgrades (ABT, AA, AB, MDRX, ADI, AVB, BBBY, BRCM, ESS, INTC, JIVE, LAMR, NOV, NWSA, NVDA, SLB, TASR, TXN, DK, PSX, MPC, WNR)

Jon C. Ogg — Tue, 18 Sep 2012 12:18:15 +0000

These are some of the top analyst upgrades, downgrades and initiations seen from Wall St. research calls this Tuesday.

Abbott Laboratories (NYSE: ABT) cut to Market Perform at Leerink Swann.

Alcoa Inc. (NYSE: AA) cut to Hold at Jefferies.

AllianceBernstein Holding L.P. (NYSE: AB) reiterated Outperform and raised target to $18 at Credit Suisse.

Allscripts Healthcare Solutions Inc. (NASDAQ: MDRX) reiterated Buy with $15 target at Argus.

Analog Devices Inc. (NASDAQ: ADI) cut to Sector Perform with $41 target at RBC.

AvalonBay Communities Inc. (NYSE: AVB) started as Buy at Goldman Sachs.

Bed Bath & Beyond Inc. (NASDAQ: BBBY) cut to Perform at Oppenheimer and reiterated Buy with $80 target at Argus.

Broadcom Corp. (NASDAQ: BRCM) raised to Outperform at RBC.

Essex Property Trust Inc. (NYSE: ESS) started as Buy at Goldman Sachs.

Intel Corp. (NASDAQ: INTC) cut to Sector Perform with $24 target at RBC.

Jive Software Inc. (NASDAQ: JIVE) raised to Outperform at Wells Fargo.

Lamar Advertising Co. (NASDAQ: LAMR) added to Conviction Buy List at Goldman Sachs.

National Oilwell Varco Inc. (NYSE: NOV) stared as Outperform at William Blair.

News Corp. (NASDAQ: NWSA) maintained Hold at Argus.

NVIDIA Corp. (NASDAQ: NVDA) cut to Sector Perform with $15 target at RBC.

Schlumberger Ltd. (NYSE: SLB) started as Market Perform at William Blair.

TASER International Inc. (NASDAQ: TASR) raised to Overweight at JPMorgan.

Texas Instruments Inc. (NASDAQ: TXN) cut to Sector Perform with $28 target at RBC.

Credit Suisse lowered its ratings to Neutral from Outperform on the independent refining sector: cut ratings by the same on Delek US Holdings Inc. (NYSE: DK), Marathon Petroleum Corp. (NYSE: MPC), Phillips 66 (NYSE: PSX) and Western Refining Inc. (NYSE: WNR).

JON C. OGG

Filed under: 24/7 Wall St. Wire, Analyst Calls Tagged: AA, AB, ABT, ADI, AVB, BBBY, BRCM, DK, ESS, INTC, JIVE, LAMR, MDRX, MPC, NOV, NVDA, NWSA, PSX, SLB, TASR, TXN, WNR

Oil Refiners Suffer from Double Whammy Today (VLO, PSX, MPC, HFC, TSO, WNR, UGA)

Paul Ausick — Mon, 17 Sep 2012 18:17:38 +0000

Oil refiners have been hit today with a double dose of bad news. Over the past three months, stocks in refiners are up from 26% to 78% as the companies have managed to keep product prices from falling too fast and maintained margins even as crude prices started to rise. Valero Energy Corp. (NYSE: VLO) even posted a new 52-week high last week.

Today, though, analysts at Citigroup have dropped their rating on three of the largest refiners: Valero, Phillips 66 (NYSE: PSX) and Marathon Petroleum Corp. (NYSE: MPC). Ratings on all three were lowered from ‘buy’ to ‘neutral’, even though Citi’s analysts also raised share price targets. HollyFrontier Corp. (NYSE: HFC), Tesoro Corp. (NYSE: TSO), and Western Refining Inc. (NYSE: WNR) were also caught up in the downdraft. All these refiners have put up new yearly highs since the beginning of September.

The downgrades hurt, and led to some profit-taking in the refiners, although none is showing unusual volume today.

The rise in WTI crude prices to near $100 a barrel the fear is that margins will get trimmed now that the summer driving season is over even though gasoline inventories remain relatively low. Refiners were also hurt recently by shutdowns related to Hurricane Isaac and some plants continue to struggle to reopen.

Valero stock is down about 4.5% today, at $32.24 in a 52-week range of $16.40 to $34.36.

Phillips 66 stock is down 0.9% at $46.33 in a 52-week range of $28.75 to $48.22.

Marathon’s shares are down 4.2% at $53.27 in a 52-week range of $26.35 to $56.22.

HollyFrontier stock is down 1.7% at $41.25 in a 52-week range of $21.13 to $42.00.

Tesoro’s shares are down 0.9% at $40.47 in a 52-week range of $17.43 to $41.64.

Western Refining stock is down 2.5% at $26.40 in a 52-week range of $11.17 to $28.04.

For comparison, the United States Gasoline Fund (NYSEMKT: UGA) is down 3.7% at $58.76 in a 52-week range of $44.65 to $61.95.

Paul Ausick

Filed under: 24/7 Wall St. Wire, Analyst Calls, Oil & Gas Tagged: HFC, MPC, PSX, TSO, UGA, VLO, WNR

Margins Lift Refiners as US Crude Production Rises

Paul Ausick — Thu, 02 Aug 2012 17:33:44 +0000

Crude oil refiners have enjoyed a pretty good earnings season so far. Tesoro Corp. (NYSE: TSO) and Western Refining Inc. (NYSE: WNR) both posted better-than-expected revenues and profits this morning, following in the wake of a similar report yesterday from Phillips 66 (NYSE: PSX). Marathon Petroleum Corp. (NYSE: MPC) and Valero Energy Corp. (NYSE: VLO) also managed to beat both top- and bottom-line estimates.

HollyFrontier Corp. (NYSE: HFC) reports earnings next week, and the consensus EPS estimate calls for $2.25, up from $1.88 just 90 days ago. Revenues are expected to reach $5.09 billion, up from $2.97 billion a year ago. Most of the increase reflects the impact of the merger of Holly Corp. and Frontier Oil Co. which was completed in July of last year.

For all these independent refiners, the secret is a not-so-secret drop in crude prices coupled with a slower drop in pump prices and rising exports of refined products. There’s little disagreement, too, about the cause of the drop in crude prices: the weak global economy is cutting demand for energy.

Refiners like HollyFrontier and Tesoro that are able to source much of their crude domestically have benefited significantly from the differential pricing between Brent crude and WTI. An even larger benefit has accrued to those companies that can source crude from the Bakken play in North Dakota and the oil sands of Alberta.

The price of Brent crude — the international benchmark — remains about $15-$19/barrel higher than WTI, and WTI costs about $20/barrel more than Canadian light, sweet crude. It costs $5/barrel to transport oil by pipeline and $10-$15/barrel to transport the crude by rail. Even so, with gasoline pump prices pegged to Brent, refiners with access to domestic crude realize a bonus margin of about $20/barrel.

And because pipeline transportation from Alberta and North Dakota is severely constrained, railroad transportation is picking up the slack. According to the Association of American Railroads, rail transportation of crude and refined products in June was 51% higher than it was a year ago and the group estimates that “virtually all” of the increase is down to crude transportation. Burlington Northern Santa Fe, now owned by Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) transports about a third of the Bakken production on unit trains carrying up to 85,000 barrels.

Tesoro announced today that it would begin running train tanker cars from the Bakken to the company’s refinery in Anacortes, Washington. The company has also expanded its expected shipping volume to 50,000 barrels/day by the end of the year. Phillips 66 plans a similar train, as does BP plc (NYSE: BP), all headed for Washington state at this time, but Tesoro is considering plans to ship crude to California. California and Washington now get most of their crude from the dwindling supply on Alaska’s North Slope, and pump prices along the West Coast are among the highest in the country.

A unit train hauling 50,000 barrels would require about 60 rail tanker cars. Tesoro expects to send out six unit trains a week from North Dakota to Washington by the end of this year.

The higher transportation costs could nibble away at refining margins, but until more pipeline capacity is added refiners with access to domestic crude by any transportation method will continue to prosper.

Paul Ausick

Filed under: 24/7 Wall St. Wire, Oil & Gas Tagged: BP, BRK-A, BRK-B, HFC, MPC, PSX, TSO, VLO, WNR