Low Crude Oil Prices Favor Mid-to-Southwest Refiners
Last month was a bullish month for refinery stocks which were seen to leapfrog those of other refining companies partly due to depressed crude oil prices.
Stock values of large U.S. oil refineries like Philips, Tesoro, Holly Frontier, and Valero have been on the rise for the past couple of weeks now. Some market specialists are convinced that these refineries will remain in full throttle, but others speculate they wouldn’t, citing that their stock values may have already peaked.
Profit margins will have a lot to do with stock outcomes in the coming weeks, so they say.
The Southwest and Midwest regions have become a haven for oil refining plants strategically located those regions. The oversupply of heavy crude in these areas has resulted in depressed crude oil prices. Oil refineries with have ready access to cheap crude are enjoying high profit margins as these types, when refined, could still be sold at very competitive prices.
This oversupply is heightened by prevailing pipeline bottlenecks and a shale boom in the area.
In contrast, some refineries located elsewhere in the U.S., in the East Coast for instance, do not enjoy the same high margins. Crude oil normally unloaded from oil tankers command a steeper crude oil price per barrel, thus leaving very little profit margin for oil refiners in the area.
Hess Corporation’s refinery in Port Reading had to be shut down, because of its failure to operate feasibly, given the steep crude price scenario. Under these conditions, Hess has decided to leave its oil refining activity and, instead, focus on production.
The sulfur-rich heavy crude oil blends cost less than the light sweet variety because they are more difficult to refine and more expensive to process. However, refineries with a ready supply of this lower-grade, heavy crude are seen to surpass rivals who rely on the light-but-more-expensive variety.
Oil specialists from one of the leading research groups disclosed that these rival groups are struggling to compete and still can’t match refineries with this heavy crude oil price advantage.
Nonetheless, experts believe that this advantage wouldn’t be sustainable for long since the price gap between light and heavy crude is closing. Profit margins enjoyed by Philips and the rest may soon cease to be a major competitive advantage.