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The sweet spot for U.S. refiners may get sweeter

Suzanne O'Halloran

U.S. refiners have been on a sweet ride and it may get even sweeter. As the price of oil gets cheaper, it costs less to refine the product into gasoline and other fuels. After a brief uptick last month, WTI crude (CLJ15.NYM) resumed its downward spiral to the $43 a barrel level - near a 52 week low.  “There is still a good difference between the crude prices and the product prices so it's giving refiners a good margin,” notes Jeff Mower, director, Americas Oil News, a unit of Platts.

While the S&P 500 (^GSPC) is flat for the year, the run-up in refining shares is impressive. Tesoro (TSO) and Valero Energy (VLO) have gained over 20%, while Marathon Petroleum (MPC) is up 10%. These gains may continue says Tim Rudderow, chief investment officer, of Mount Lucas Management. He added to his position in Tesoro and cut back on Valero. “Margins continue to be strong and we like these companies,” he told Yahoo Finance in an email.

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Things may get even better for the industry says Mower, who highlights two upcoming catalysts. “European refiners are actually going to go under heavy maintenance,” and that opens a window for U.S. counterparts he says. “While the U.S. doesn’t really export crude, or exports very small amounts of it, U.S. refiners can export refined products, especially diesel.”

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Related: ConocoPhillips CEO Ryan Lance Testifies Before Senate Energy and Natural Resources Committee on U.S. Crude Oil Export Policy

As European refiners take a maintenance breather, their U.S. counterparts come back online. “In the spring, over the next couple months some refiners are going to come out of maintenance, especially say in the Gulf Coast, and what they are going to do is start running more of that crude.” That may help reduce supplies which hit an 80-year high this week, according to the U.S. Energy Information Administration’s (EIA) weekly report.

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