Refiners Fight Back to Boost Stocks

NEW YORK (TheStreet) -- The ridiculous and market-driven dislocation between crude oil and crude products, particularly gasoline, is squeezing the domestic refiners to the breaking point.

They're finally fighting back, and it should set up for a big increase in gasoline prices in the spring and a big increase in the price of refinery shares.

Trade Refining Stocks

The Lundberg Report, a regular tracker of gasoline prices, released its figures on Sunday, and a pattern over the last year wasn't broken. The average price of a gallon of gas went down more than 4 cents over the last two weeks, while the price of crude oil was up $5.75 a barrel, an increase of 8.7%.

Oil traders measure the differential between crude oil and the products that come from crude oil using "crack spreads." And this pattern of crude going up while gas prices go down, or a decrease in the crack spread, has been a recurring one in the last two years.

For this winter, gasoline cracks are reading in the low-single digits. The December gasoline crack has flattened to trade under $3, an incredibly low value even for the typical off-season for gas. But in recent history, these insanely tiny margins for refining are no longer unusual. During the past summer, in-season gasoline cracks traded barely in the low teens compared with "normal" summer cracks that traded at $25, $35 and even $45 in the past several years. In the late winter of 2008 and into the spring, we actually saw gasoline cracks trade negative.