[Starvid]

$this->bbcode_second_pass_quote('Mechler', 'S')ince the RBOB situation is tight

[pup55]

Reformulated gasoline Blendstock for Oxygenate Blending

Ethanol being one of the popular Oxygenates.

[pup55]

Update: We have not checked in on this for awhile.

At 93.76 for crude, and 2.368 for RBOB, the refinery margin has now dropped back down to 13.5 cents per gallon, or $5.69 per barrel. So, the plant manager at the refinery will not be a happy camper this week, because at this rate, he is losing money on unleaded.

At $2.58 for heating oil, though, he is a little happier:35 cents per gallon, and $14.60 per barrel.

So, this morning, when he came in, he probably turned the knob on the reactor all the way to "heating oil" to whatever extent he can.

The weighted average is 21 cents/gal or $9.09 per barrel, so this is probably enough money overall to keep him coming in every morning.

[pup55]

Update:

Current crude oil price: 89
Current Unleaded Price:2.23
Current Heating Oil Price: 2.51

Refinery Margin:23.1 cents/gallon, 9.71 per barrel

Despite the oil price being down $11 in the last couple of weeks, tne refining margin is still not really all that good.

Unleaded is only 11 cents, heating oil is more like 35 cents.

So despite the recent price swing, the refiners are still not making enough money at the current crude oil price. So, either the products will go up, or the crude price will continue to go down.

[Starvid]

Does anyone know why refining margins are so weak? Considering they were very strong just a few years ago.

[pup55]

There is a seasonal period during the fall normally in which the demand for both gasoline and heating oil is at its minimum.

There is another minimum, in January and February, on gasoline.

The maximum in heating oil has not yet hit. It does not hit until mid January. Maybe a little earlier if the weather gets cold.

This year, the gasoline followed the normal pattern of relatively low demand, but the crude oil went crazy (temporarily) because of all of these other problems. The products were catching up briefly awhile back.

[pup55]

Update:

Crude price: 85.93
Unleaded: 2.189
Distillates: 2.456

Refinery Margin: .2578$/gal or $10.83 $/bbl

The oil price at which the refinery margin returns to about .33/gal is $83.74, so we are almost there.

I wish I had bookmarked that thread where we had predicted that the refinery margin situation would correct itself by December 7th (maybe it's this one) because it looks as though this is exactly what happened.

To be sure, the less efficient refiners would still like to have this margin be a little higher, but the low cost guys are starting to make money again.

So we are almost at the point at which the prices will stabilize a little bit. If we get some cold weather, and heating oil goes up, we could get back up into the 40's before long.

[pup55]

Update (8 hours later):

Crude price: 90.57
Heating Oil 2.55
Unleaded 2.30

Refinery margin: .2510 cents/gal 10.545 $/barrel
Crude oil price needed for .33 refining margin: 87.22

Up almost $5 in 8 hours, and an 11 cent increase in RBOB. Right here is why it is hard to make money trading commodities. The refinery margin is about the same as it was, though, and we are still not too far from people wanting to flip the switch and run the reactor again.

[pup55]

Here is a graph for you. It's the refinery margins, calculated the same way as we were calculating them above, including the effects of heating oil. Some of the earlier calculations in this thread were based on unleaded only, so this is probably a little better indicator. An adjustment for propane or jet fuel would have added a little to the calculation, not much.

The graph covers the period since October 1. Units are $ per barrel, so divide by 42 to get the cents/gal

As you can see, when Uncovering Truths started this thread on November 1, we had just passed the absolute minimum (the white arrow) So, the frequent viewers of PO.com who had been following this thread and been inclined to invest in the refiners would have gone in at almost the point of minimum refinery margin. This strategy would have been a little iffy: Most of the stocks of these refiners continued to go down. I think Mechler liked WNR and that one has gone down only about 15% or so. Some of these others have been beaten down a lot more. HOC, most heinously, has gone from 65 to about 42.

The strategy of going out and filling up your red plastic gas cans would also have been sort of iffy. You would have looked like a financial genius on November 9, and around Thanksgiving, when the prices spiked up, but what really mainly happened was that oil went down.

However, since then, despite gyrations in both markets, the overall trend has been that refinery margins have improved a lot. In fact, we are now at the point, as predicted, when the relationship between the product prices and the crude oil prices are such that most (not all) of the refiners are profitable again. We still have another maybe $2-3 per barrel to go on this in order to get everyone into the black.

So, what is going to happen from here on? I think what will happen is that the current trend will continue until right after New Year. Reason: This is a time of year of strong unleaded demand, for holiday travel, and also pretty strong distillate demand, because people are filling their heating oil tanks. If the winter turns out to be mild, we might be in for some backing off of this in January/Early February.

But after that, hang on to your wallet, because nothing whatsoever has changed from last spring, when refinery capacity shortage kicked in, and the refiners were fattening up.

Far be it from me, some guy on the internet, to make predictions on the stock price of a given company, but you have to say that at this point, some of these guys ought to be turning around, because all of a sudden, for the first time in awhile, the refiners are going to be making some money. They may have a bad fourth quarter, but the very temporary condition of bad refinery margins have, for the moment, improved.

[Mechler]

Thanks for the updates, Pup. Keep 'em coming!

[pup55]

Update:

Crude price: 93.76
RBOB: 2.398
Heating Oil: 2.634

Refinery Margin: 26.53 cents/gal or 11.14 dollars/barrel

Margins are still steadily climbing, which is completely unsurprising to the viewers of PO.com who have been on to this for awhile. About six weeks or so ago, everyone was confused as to why the finished products prices were mysteriously decoupled from crude oil. Well, that situation is no longer with us. The products are now climbing just as much as the crude oil.



Here is your stock table

[pup55]

I have to have some more fun with this:

In the third quarter, when TSO was so beaten down, its average refinery margin was $6.16 per barrel. So let's say for the sake of argument that they are pretty typical, and the refinery margin is now $11.16, an even $5 per barrel improvement.

They are going to refine somewhere around 635 kb/d

During the fourth quarter, assuming the trend continues and the average refinery margin for the quarter ends up about where it is now, they will make an additional $285 million dollars (635kb/d times 90 days times $5 per barrel).

They have 137 million shares outstanding. So their increased earnings will be about $2.09 per share. Their PE ratio is about 8. So we can expect their stock price to go from what it is now, about 47, to roughly 63, give or take, when the market wakes up to what is happening.

Kerkorian knew this a few weeks ago when he bid $64 for 21.9 million shares of the company.

Yahoo News

As it turns out, a week or so ago, the management rejected Kerkorian's offer of $64 per share, and adopted some anti-takeover rules. No doubt there was some self-preservation involved, but with the stock price now at 47, you have to say to yourself, "what do they know that they are not telling anybody?" They must be pretty confident that the stockholders value will be better served by not working with Kerkorian, and waiting for the stock to do what it is going to do when the refinery margins get to where they are going.

It will be interesting to see how all of this plays out.

Per what we said earlier, I think TSO is a small example of what is playing out among all of the refiners. WNR might be in exactly the same boat.

This is why people like Kerkorian are rich. They see unrealized value, and try to take advantage of it. The Marxists among us will point out that they add no value, do no work, are much less valuable to the company than the night shift maintenance supervisor who has to keep the whole thing from blowing up, but have a chance to make a fortune on one deal because of their ability to recognize and understand value.

There is some risk involved, of course. It might go the other way. (example: Kerkorian and GM). Kerkorian can also add some upside value, like we said the other day, by getting rid of the entrenched management, making efficiency improvements, etc. But, evidently he ticked them off, so it will be someone else who adds the value. This is capitalism for you.


The frequent viewers of PO.com or anyone else can capture some of this value themselves with an E-trade account, and few hundred in savings, if you are willing to share the risk. This is also capitalism for you.

The next question is: Where is this money coming from? Well, as we know this money is coming from the extra amount that you and I pay at the gas pump, or every time we turn on our oil-heated furnace. So in effect, there is a wealth transfer between the consuming public, and the stockholders. Nothing says that someone cannot protect themselves at least partially by becoming one of the stockholders, per the above. It will put you in a better mood when you fill up your SUV.


Warning: I am just some guy on the internet. This post, like all of my posts, is for entertainment purposes only, not to be construed as any investment advice. Do not accept investment advice from someone who has a job. Do not believe everything you see on the internet.

Kerkorian

[pup55]

$this->bbcode_second_pass_quote('', 'C')rude Oil 89.8
HO 2.5974
RBOB 2.3297

Margin 12.882062 $/bbl
Margin 0.306715762 Cents/gal

[qwanta]

Hi pup,

thanks for the updates and for sharing your valuable knowledge with us.

I was wondering, are refiners like Tesoro & Valero the best way of playing the continuing increase in oil prices in the long term, in your opinion?

I own shares in both, but with the crack spread uncertainty I'm thinking of weighting more towards national companies like PetroBrasil, PetroChina or oil service like Schlumberger which seem perhaps like a more foolproof way of betting on continuing high oil prices (especially if the US economy slows down, say)

[threadbear]

$this->bbcode_second_pass_quote('lawnchair', 'F')ascinating. Tesoro has the major refinery in the Dakotas (Mandan ND). There have been actual lingering shortages of diesel and petrol in the region. For whatever reason (politics?) they haven't raised prices as much as I would think they could have. That won't continue.

[pup55]

$this->bbcode_second_pass_quote('', 'e')specially if the US economy slows down, say

[qwanta]

Thanks.

I actually have the bulk of my oil investment in a fund (GAGEX), but I like to speculate a little on the side with individual stocks. In any case, I think I'm going to hold VLO & TSO until Spring at least to see what happens with higher gas prices.

[pup55]

$this->bbcode_second_pass_quote('', 'C')rude Oil 90.24
HO 2.555
RBOB 2.3157

Margin 11.341158 $/bbl
Margin 0.270027571 Cents/gal

[pup55]

Update:

$this->bbcode_second_pass_quote('', 'C')rude Oil 91.9
HO 2.6
RBOB 2.3585

Ref Margin 12.9385 $/bbl
Ref Margin 0.3081 Cents/Gal

[pup55]

$this->bbcode_second_pass_quote('', 'C')rude Oil 96.11
HO 2.666
RBOB 2.458

Ref Margin 12.1055 $/bbl
Ref Margin 0.2882 Cents/Gal