HOUSTON (The Deal) -- The recent slide in oil prices has been a disaster for the oil and gas industry, leading to layoffs, distressed asset sales and even some bankruptcies -- with more expected. Yet oil and gas refiners are the best performing subsector within the energy industry so far this year, just ahead of small- to mid-cap exploration and production companies, according to a recent report from Tudor, Pickering Holt & Co. Securities.
Among the top performers, some are near their 52-week highs: Tesoro (TSO) , which has jumped 20%; Delek US Holdings (DK - Get Report) , which has advanced 18%; and Marathon Petroleum (MPC - Get Report) , which is up 10%. Valero Energy (VLO - Get Report) , Phillips 66 (PSX - Get Report) and Northern Tier Energy (NTI) have increased in the 8% to 9% range, while CVR Energy (CVI - Get Report) is up 7% and Western Refining (WNR) and HollyFrontier (HFC - Get Report) are up 5%.
"Downstream companies are at the better end of the commodity benefits," said Deborah Byers, U.S. oil and gas leader at Ernst & Young. "Feedstock prices have been positive for them."
But that may not last long. Oil and gas prices -- at $50 per barrel -- are inching upward from their $45 low in January and the International Energy Agency expects them to average around $55 this year and $60 next year, which will take away a piece of refiners' low-feedstock advantage.
What's more, if strikes by union workers that began at the end of last month at some refiners drag on, that will contribute to the chaos around the energy sector -- and oil's potential rise.
"Companies have emergency response systems in place for their employees to run the refineries for several weeks," says Fadel Gheit, a longtime oil and gas industry watcher at Oppenheimer (OPY - Get Report) . "A prolonged strike for months, however, could prove disruptive." Analysts at Tudor Pickering agreed: "We continue to believe that there will be limited market impacts unless prolonged negotiations result in additional longer-term plant shutdowns."
Those companies affected by the striking workers -- who are protesting inadequate pay and unfair labor practices with their first major walkout in 35 years -- include integrated oil giant Royal Dutch Shell (RDS.A - Get Report) (RDS.B - Get Report) , chemicals maker LyondellBassell Industries (LYB - Get Report) , Marathon Petroleum and Tesoro. Last weekend, the United Steelworkers union added to its strike list BP's (BP - Get Report) facilities in Whiting, Ind. -- the company's largest in the world -- and Toledo, Ohio (a 50-50 joint venture with Husky Oil), meaning 1,400 more workers on the picket line.
"Management cannot continue to resist allowing workers a stronger voice on issues that could very well make the difference between life and death for too many of them," USW International President Leo Gerard said in a statement.
That makes 5,000 workers at 11 facilities in six states, including California, Kentucky, Texas and Washington -- sites that account for around 13% of the nation's refining capacity. The national contract -- which expired Feb. 1 -- covers 65 refineries that handle nearly two-thirds of the country's oil.
Talks between the union and industry representatives resumed on Tuesday after falling apart last week, a failure which led to the addition of the two striking BP facilities.
Shell -- which has taken the lead in the negotiations -- has said it's committed to resolving the dispute. So has BP. "BP remains at the negotiating table and is committed to reaching an agreement that provides good wages while giving management the flexibility it needs to enhance safety, improve efficiency and remain competitive with others in the industry," BP spokesman Scott Dean said in a written statement.
So far, Tesoro is the only company that has suspended processing, at its Martinez, Calif., refinery, but it was already in the midst of doing so at half of its operations to conduct regularly scheduled maintenance.
Gheit said the key to refiners' 2015 earnings will be the differential between the prices of Brent and West Texas Intermediate crude oil -- "$6 per barrel today versus zero two weeks ago," he says -- plus cheap natural gas and strong domestic demand as well as exports. He also believes the two sides in the union dispute will come to an agreement. "I think both parties will likely settle before reaching a critical impasse," he said. That deal can't come too soon.