Gas Trade Turns the Tables

Independent refineries are now in excellent position to profit from these advantageous crack spreads by buying crude oil cheap and selling gasoline at higher rates. On March 20, Merrill Lynch raised its earnings estimates for Frontier, Tesoro, Valero, Holly (HOC Quote - Cramer on HOC - Stock Picks) and Sunoco (SUN Quote - Cramer on SUN - Stock Picks).

Frontier, Tesoro and Valero all have buy ratings, whereas Holly and Sunoco have hold ratings.

With gasoline crack spreads being this high this early in the gasoline refining season, it won't be surprising if they reach the same levels that they made last spring. Investors should also be prepared for crude and gasoline futures prices to plummet when the summer driving season ends in September.

Using 2006 as a guide, gasoline futures reached a summertime high of $2.43 a gallon on Aug. 2, while crude oil topped out at $77.05 a barrel on Aug. 7. On the back end, gasoline fell to $1.44 a gallon on Sept. 20, and crude oil bottomed out at $57.56 on Oct. 11. That's a trading pattern any investor can follow.

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