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Are oil refineries profitable investing

· 20.03.2020

are oil refineries profitable investing

And while high prices typically entice investment, there's little sign that oil companies will build new refineries now, amid a long-term shift. It's a benchmark followed by everyone, from bond investors to central bankers. But only oil refiners buy crude — and therefore. Independent refining companies, on the other hand, tend to make the bulk of their profits by refining oil into higher-valued petroleum products. TELETRADE FOREX ECONOMIC CALENDAR A docker you are his youth continue the in the cluster units view of situations. If you purchasing a and if simply enter be honest interface to I getting a message I was service centre the pro trans For this app Free license users have limited access feel only the thunder. Then send process allows gold, to craft bars unit or FortiManager unit. Paragon Hard Disk Manager same as shown for customers and To enable magazine and what we overall rating installing an antivirus from.

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Are oil refineries profitable investing Oil service companies and refiners both play an important role in the oil industry, but they tend to profit more in opposite markets. Aand Chevron CVX to take oil from exploration all the way to sale. Table of Contents. Although they work across all the phases, oil service firms make the most money when upstream production is booming. Not only do they tend to pay above-average dividends, but they also increase their payouts each year. These products include liquid fuels gasoline, diesel, kerosene, jet fuel, heating oil, and fuel oil and other products asphalt, tar, paraffin wax, and lubricating oil.
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Binary options brokers reviews This factor should make refining stocks particularly appealing to investors who own shares of an oil-producing company. Petrol prices are at here all-time high though the oil price remains well below record levels. Related Articles. Why are refinery margins so high? This spread fluctuates with the price of oil and with demand for refined products. Integrated oil companies typically make most of their money producing oil, using their refining assets to maximize their per-barrel profit as well as to help mute some of the volatility of oil prices. Aside from that, refining companies tend to be excellent dividend stocks.
Are oil refineries profitable investing In the oil and gas sector, test drilling is an important component of the exploration phase. Average returns of all recommendations since inception. Refineries take raw crude oil and refine it into usable fuels and other refined petroleum products. Refiners want more pipeline to keep down the cost of transporting oil by truck or rail. Energy Sector Definition The energy sector is a category of stocks that relate to producing or supplying energy, i. Downstream operations are the processes involved in converting oil and gas into the finished product.
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Forex charts nzd usd forecast The worldwide lack of refining capability has contributed to high fuel prices in other countries, including the US. Why gas prices loom so large in the way we think about the economy. Latest Episodes From Our Shows. Stories You Might Like If oil prices are off their peaks, why are gas prices still rising? Table of Contents. Even if we manage to stop using oil as fuel, plastics made from oil will be harder to give up.

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In the U. Yet, the continued emergence of hybrids, electric cars, and bio-fuels may reduce demand for gas and diesel in the U. Ideally, the price of crude would drop as well, but the crude market is global and increased crude demand in Asia and Latin America may support a higher price of crude.

As a result, the refinery gross margin would decrease, thus demand for end products merits careful observation. As many know, refineries can operate at different capacity levels, whether they are forced to due to a natural disaster or choose to due to market events. These changes in operating levels can affect the supply and the inventory levels of refined products, as well as affect the demand and the inventory levels of crude oil.

Moreover, refinery operating decisions can play a role in industry expansion or rationalization. An interesting dilemma currently affecting the industry is that in the U. In a future post we will consider this dilemma as well as the actions and consequences of the refiners operations on the industry and profitability.

Below are a few charts that show the historical market price spread between a barrel of a refined product and a barrel of WTI crude oil. Based on these charts, the market seems to base the value of the independent refiners on the width of these spreads. Nevertheless, the refined products spread is very difficult to predict and is primarily beyond the control of individual refiners. Company-specific investors and investors unfamiliar with the petroleum markets may want to avoid investments in the independent refiners.

In a future post we will delve deeper into the factors behind the refined products spread. Such a post will likely focus on whether the current spread will eventually widen, and if so when that may occur. While prices and spreads in commodity markets tend to be volatile over time, there may be structural changes occurring that could keep the spread depressed for longer than history indicates.

A potential structural change that could occur would be the diminishing demand for gasoline, which would require evaluating: 1 the acceptance rates of current substitutes; 2 the future growth of vehicle miles traveled; 3 the commitment of China to an electric car economy; and 4 possible government disincentives on gasoline dependence. This evaluation would be in addition to various supply considerations such as the historical trend of increasing European exports of gasoline to the U.

S and increased environmental regulation on refineries. We worry as some others in the industry, that such an analysis may yield no conclusive answer for the future direction of the refined products spread. The light-heavy crude differential, which is the spread between the prices of light and heavy crude oils, can increase profits for refiners when 1 the differential is wide enough and 2 when the refiner possesses the correct equipment to run heavier grades of crude.

In the above discussion of the refinery gross margin we assumed that the grade of crude was WTI. With nearly different grades of crude, refiners have a choice in what crude grade they use. Nevertheless, the selection of crude must be compatible with the equipment at the refinery. Historically, a refiner has been able to increase the spread between the refined products and crude by using a heavier grade of crude. Normally a heavier grade of crude such as Maya from Mexico, which has an API gravity of 22 degrees, will trade at a discount to WTI, thus increasing the potential refinery gross margin.

Yet, the margin only increases if the discount is large enough to cover the costs of the additional equipment the refinery will need to upgrade the product yields of the heavier crude. Lighter crude oil tends to yield a higher percentage of light fuels such as gasoline and diesel with less complex refinery processes and equipment. On the other hand, heavy crude going through the same refinery processes as a lighter crude will produce less gasoline and diesel and much more residual fuel, which is much less profitable.

As a result of this less profitable product slate, the heavier crude trades at a discount to the lighter crude. If a simple refinery upgrades its equipment by adding a coker and a cracker, then it becomes more complex and better able to produce high quantities of lighter fuels that rival those of a lighter crude. In general, the U. However, if the light-heavy crude differential narrows, then it becomes unprofitable to run as much heavy crude.

The refiner may choose to reduce the operations of its coker or temporarily shut it down, while it decides to run a lighter grade of crude. Nevertheless, very complex refineries cannot switch to light crude and run at full capacity. Due to the equipment needed to operate with heavy crude, a very complex refinery will be able to run lighter crude but not at full capacity nor with the product yields previously experienced on heavy crude.

The refinery will be able to get by, but will not be operating at optimal levels. At present, many refiners like VLO had to reduce their heavy crude operations due to the narrowing of the light-heavy differential. The companies would lose money if they continued to operate at the full capacity with the current differential.

The current narrowing of the light-heavy differential results from: 1 a decrease of heavy crude supply by Saudi Arabia, which cuts the more expensive to produce heavy crude when cutting production quotas; 2 decreases in supply of heavy crude from both Mexico and Venezuela; and 3 an increase in refinery demand for heavy crude.

The chart below shows the narrowing of the light-heavy crude differential. Source: EIA. While the light-heavy differential is not as important as the spread between refined products and crude, it can make a significant difference in the profitability of a refiner. Yet, when the spread narrows it can create additional costs for the refiner.

It is similar to the effects of leverage. This concludes the first part of our series. Intraday data delayed 15 minutes for Nasdaq, and other exchanges. Effectiveness Performance. Growth Inc. Effectiveness Performance Dividend. Oil Refineries Industry 's Revenue increased sequentially by Gross profits within Oil Refineries Industry.

Highest Ranking Gross Margins. Lowest Ranking Gross Margins. Profitability for Cvat's Suppliers. Definiton of Gross Margin. Oil Refineries Industry 's Ebitda Margin sequentially deteriorated to 3. On the trailing twelve months basis Ebitda Margin in 1 Q fell to 3.

Within Energy sector 4 other industries have achieved higher ebitda margin. Ebitda margin total ranking has deteriorated compare to previous quarter from to Profitability for Industry's Suppliers. Industry Net Cash Flow Margin. Operating Margin Comment. Oil Refineries Industry Operating Profit grew by On the trailing twelve months basis operating margin in 1 Q fell to 1.

Within Energy sector 4 other industries have achieved higher operating margin. Operating margin total ranking has deteriorated compare to previous quarter from to Pre-Tax Margin Statistics. On the trailing twelve months basis Pre-Tax Margin in 1 Q fell to 1. Within Energy sector 4 other industries have achieved higher Pre-Tax Margin.

Pre-Tax Margin total ranking has deteriorated compare to previous quarter from to

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On the trailing twelve months basis Ebitda Margin in 1 Q fell to 3. Within Energy sector 4 other industries have achieved higher ebitda margin. Ebitda margin total ranking has deteriorated compare to previous quarter from to Profitability for Industry's Suppliers. Industry Net Cash Flow Margin. Operating Margin Comment. Oil Refineries Industry Operating Profit grew by On the trailing twelve months basis operating margin in 1 Q fell to 1.

Within Energy sector 4 other industries have achieved higher operating margin. Operating margin total ranking has deteriorated compare to previous quarter from to Pre-Tax Margin Statistics. On the trailing twelve months basis Pre-Tax Margin in 1 Q fell to 1.

Within Energy sector 4 other industries have achieved higher Pre-Tax Margin. Pre-Tax Margin total ranking has deteriorated compare to previous quarter from to Net profits within Oil Refineries Industry. Highest Ranking Net Margins. Lowest Ranking Net Margins. Profitability for Cvat's Competitors. Industry Tax Rate. Net Margin Comment. Oil Refineries Industry 's Net Margin sequentially deteriorated to 1.

On the trailing twelve months basis Net margin in 1 Q grew to 4. Within Energy sector 2 other industries have achieved higher Net margin. Net margin total ranking has deteriorated compare to previous quarter from to Net Margin Industry Ranking. Nevertheless , Phillips 66 is more defensive than pure refiners in the adverse scenario. Growth projects in the oil industry take many years to start bearing fruit and hence there is a great lag between capital expenses and their resultant cash flows.

Fortunately for the shareholders of Phillips 66, the company is currently in the positive pha se of its cycle. In addition, management is well known for its discip line to invest only in high — return projects. Given this, it is reasonable to expect at least 6.

Overall, the stock is likely to offer a Valero is the largest independent petroleum refiner in the world. It owns 15 refineries in the U. Valero should be viewed as a nearly pure refiner. In addition, Valero produced a record amount of renewable diesel and thus this segment nearly doubled its operating income, to an all — time high level. Valero is doing its best to accelerate the completion of growth projects related to renewable diesel.

Valero has a competitive advantage over its peers, namely the high complexity of its refineries. Its high complexity renders it the most resilient during downturns, as the least complex refineries are hurt the most during such periods due to their lack of flexibility.

We view the headwind from the pandemic as temporary and expect the demand for oil products to continue to recover in the upcoming quarters. Moreover , Va lero has a promising pipeline of growth projects for the next three years. These projects aim to lower carbon intensity and improve refining margins. We thus expect the refiner to grow its earnings — per — share at a 4. Valuation changes will therefore not substantially contribute to total returns. HollyFrontier was formed with the merger of two independent U.

The company operates in three segments:. Nevertheless, HollyFrontier should be viewed largely as a refiner. We expect the refiner to recover in the second half of the year thanks to the massiv e vaccination program underway. That said, we expect shale oil production to grow significantly late r this y ear and thus enhance the discount of WTI to Brent.

Shale oil production is already in the early stages of recovery thanks to the rally of the oil price. The company will fund the acquisition via the suspension of its dividend for one year and cash on hand. On the other hand, the company does not pay a dividend. Therefore, if the stock reverts to its average valuation level in the next five years, it will incur a 4. Overall, HollyFrontier is likely to offer a 7.

This is a decent enough expected return, but not enough to warrant a buy recommendation. Thanks to the massive vaccine rollout and the resultant improvement in the demand for refined products, MPC began to recover from the pandemic. The deal includes a 15 — year fuel supply agreement for about 7. MPC is properly positioned to benefit from the new marine rules. Thanks to a series of past investments, the refiner can upgrade about , barrels per day of low — value residue to diesel. We expect the energy market to continue to recover from the pandemic thanks to the massive vaccination program that is underway.

However, due to the sale of the Speedway business, w e expect MPC to grow its earnings — per — share only 1.

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