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US Refiners

Launched March 2, 2015


Oil prices are up but they are also again diverging, offering a renewed windfall for US refiners. While it's too early to conclude that oil prices have hit a bottom, February's rally marked the strongest one-month gain in six years for Brent, the international benchmark (the green line in the chart to the left). Prices in the US were also up, but the gains for West Texas are more muted (the blue line). As a result, while refiners everywhere face higher input costs, US-based refiners are again enjoying a relative price advantage, as measured by Brent's premium to West Texas (the chart to the right).

US refiners have been among the most direct beneficiaries of the North American energy revolution since the gap first emerged in 2011. Between tar sands in Canada and oil shale in the US, the surge in production has overwhelmed the energy infrastructure and led to a localized surplus. Eventually, as rail and pipeline connections are expanded and the US continues to ease export restrictions, North American oil production will be re-integrated into global markets.

For now, US refiners stand to benefit from the difference between US and global oil prices, which MRP expects to continue at least through the next two quarters and therefore recommends going long a basket of refiners for investors with relatively shorter time horizons. However, we expect more than the usual volatility: oil prices could reverse and the outbreak of strikes at some refiners could spread. A short on the XLE energy ETF can help offset some of the market volatility.


Constituents in the S&P 1500 Oil & Gas Refining & Marketing  Index:



Last updated March 3, 2014

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Warren Hatch, PhD, CFA
Portfolio Management and Global Investment Strategy
McAlinden Research Partners

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