NEW YORK (TheStreet) -- Opportunistic oil refiners such as HollyFrontier (HFC) thrive or thirst based on the spread between the price of West Texas Intermediate (WTI) oil and the international Brent crude price. The wider the spread, the more money it can make.
The investment theme in this article concerns how refiners like HollyFrontier make maximum profits. When there's a glut of oil, as there is for the moment, HollyFrontier can buy it for $90 a barrel and then sell the refined products it creates at international prices, making a small fortune with each transaction.
As Cramer points out, right now, WTI is selling for a discount of $10 to Brent, or $98 vs. $108, and then oil from the Permian basin "is selling at an additional $8 decline to the $98 price [of WTI] as Permian producers duke it out for pipeline space and take discounts galore to do so."
This is a field-day for the companies that own the pipelines and for refiners who take advantage of the situation in the Permian basin. Since HollyFrontier can buy Permian oil directly, it's in line to directly benefit. Right now its shares are down 1.5% for the year to date as of the Thursday close of $49.
As an independent U.S. refiner the company uses the discounted oil to produce high-value refined products such as gasoline, diesel fuel, jet fuel, specialty lubricant products, liquid petroleum gas, fuel oil and specialty, modified asphalt.
With a refining capacity of approximately 443,000 barrels per day in refineries located in El Dorado, Kansas, Tulsa, Oklahoma, Artesia, New Mexico, Cheyenne, Wyoming, and Woods Cross, Utah, the company is strategically located to take advantage of this chance to buy low, refine efficiently and sell at profitable prices to its broad customer base.
HollyFrontier offers its products to other refiners, convenience store chains, independent marketers, retailers, truck stop chains, wholesalers, railroads, government agencies, paving contractors and commercial-specialty markets, as well to airlines in the U.S. and abroad.