This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Oil Refiners Able to 'Mint Money'

Stocks in this article: VLOTSOMROFTOHOCXOMCVXCOP

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Daniel Dicker joined NBR Tuesday (watch video and read transcript here) to discuss which oil and refining companies are positioned to profit as commodity prices climb.

Refining: It's the only sector, in energy or elsewhere, that is not just immune to rising commodity costs, but poised to benefit from them.

For dedicated refining stocks and integrated energy stocks with exposure to refining, that's a tremendous advantage, especially as we get deeper into first-quarter earnings. In a market that has been testing our ability to find value, these stocks represent the best opportunities in energy right now.

As our "Teflon" market grinds higher, the one big analyst concern for stocks has been margin compression from the monster moves in all commodities -- in corn, beans, cotton, copper and, most notably, oil.

Word on the Street

One group that will obviously benefit from higher oil prices is the large integrated oil stocks, like Exxon (XOM), Chevron (CVX) and Conoco-Philips (COP). But less obvious beneficiaries are refining stocks, including Valero (VLO), Tesoro (TSO) and Marathon (MRO).

One big reason refiners are doing especially well is the continuing disconnect between the price of West Texas Intermediate (WTI) crude, traded at the NYMEX, and the price of Brent crude, traded at the Intercontinental Exchange (ICE).

It's a complex relationship and difficult to explain in a short column, but think of it this way: Imagine that the input costs of a refinery are represented by the WTI price, while the Brent price better reflects what the companies can charge consumers at the pump. Therefore, the further the price of Brent crude climbs above WTI, the better the margins and bigger the profits oil refiners will see.

This spread between Brent crude and WTI has been at a historic premium for the last several months. What is more spectacular, though, is that it has begun to increase again in the last few days, and is now at almost $14. That's about as close to a license to steal as the refiners can get, and they absolutely mint money in a relationship like this.

The refiners I mentioned earlier have run substantially already on the basis of this continuing disconnect, but there is one more that might just be the best: Frontier (FTO). Their refining assets in the mid-continent region of the U.S. are the best poised to maximize margins from the WTI/Brent spread. Their soon-to-be-merger partner Holly (HOC) offers the same trade in a slightly different form.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,195.42 +221.11 1.30%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,566.1380 +16.9120 0.37%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs