This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Refiners Primed to Regain Pricing Power


Fortunately for companies like Hess (HES) and Holly (HFC), most price relationships tend to revert to the mean. This will most likely remain true for the relationship between crude oil and gasoline prices. The price relationship between these two commodity markets is sitting right at the high of its 17-year range. In our experience, commodity spreads like this one, rarely remain at price extremes for very long. This means, in the near future, gasoline prices should rally strongly in relation to crude oil prices.

All of these points ultimately create an improving environment for oil refinery stocks, and a potential buy point. When these companies see a drop in their input costs compared to the prices they can charge through a retail outlet, their margins should swell. This would reward stockholders. At the very least, the primary driver for the substantial declines in the refinery sector should be waning.

Historically, situations like this one have shown refinery stocks to at least perform well compared to the broad market. What does this mean?

If an investor is bearish on stocks as a whole and looking for short-sell candidates, refining stocks are probably not ideal. Also, investors looking to create a neutral portfolio could buy refining stocks and sell short a broad market ETF, like the SPDR S&P 500 ETF Trust (SPY). This pairing says, "I like the improving conditions for refining companies, but I'm unsure about the broad stock market".

There are a number of ways to take advantage of the changes coming to the refining sector, and well-informed investors should be rewarded for identifying these developments. Many of the oil-refining companies have been shunned by portfolio managers and general investors as a whole, which has helped to push prices lower by up to 33%. Now may be the time to view this decline as a gift, rather than the start of a new bear market within the sector.

At the time of publication, Andrew McCormick, MKC Global Investments, LLC and the MKC Global Fund, LP are long December Mini Russell 2000 futures.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Andrew McCormick is the president and founder of MKC Global Investments, an alternative investment company (CTA) based in Seattle, WA. Through individually managed accounts, the company provides active strategies that trade in more than 90 global commodity, currency and financial markets.

McCormick contributes market commentary to and China's CBN TV. His research has been used in U.S. Senate Agricultural Committee hearings in regard to the troubles facing the financial industry. McCormick also serves in a consulting capacity to assist in risk-management solutions for utility companies, international proprietary trading firms, introducing brokers and hedge funds.

2 of 2

Select the service that is right for you!

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 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • 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