Oil Refiner Insiders Buy Most Shares Since 2000 in Bet Crude Will Plummet Refiner Insiders Buy Most Stock Since 2000 on Oil Bet (Update1) By Michael Tsang and Eric Martin June 23 (Bloomberg) -- Refinery executives are buying more of their own stock than at any time since 2000, prompting investors to bet that a retreat in oil will boost profits and reverse the biggest share decline in a decade. Executives at 10 refining companies snapped up $2 million of their shares last month, twice what they sold, according to data from the Washington Service, which analyzes insider patterns for 500 institutional clients. That helped raise the average level of purchases to the highest in eight years, data from Argus Research Co. compiled by Leuthold Group show. Before March, insiders dumped more shares than they bought every week since 2003. Insiders added to stakes following a 42 percent slide in oil and gas processors in Standard & Poor's indexes as of last week, the largest drop since at least 1995, after a 40 percent gain in crude pushed down profits. Caxton Associates LLC, Citadel Investment Group LLC and Renaissance Technologies Corp., which oversee $64 billion in hedge-fund assets, also boosted bets that the shares will rebound, according to data compiled by Bloomberg. ``Anyone right now buying the refiners would have to be banking on a pullback in oil prices,'' said Jack Ablin, 48, who oversees $65 billion as chief investment officer at Harris Private Bank in Chicago, which owns shares of Valero Energy Corp. and Tesoro Corp., the largest and third-largest U.S. refiners by market value, according to data compiled by Bloomberg. Profits at U.S. refiners plunged 98 percent in the first quarter after they were unable to compensate for oil's rise with higher gasoline, heating oil and jet fuel prices, data compiled by Bloomberg showed. Piling In Today, oil refiners in S&P stock indexes gained 0.6 percent as of 10:37 a.m. in New York trading. Buying by chief executive officers, directors and other senior officials exceeded sales by the greatest amount since December 2000, based on data compiled by Leuthold from New York- based Argus's Vickers Stock Research unit. Vickers assigns a numerical score to each company for insider transactions based on how many shares the executive purchases and how his actions compare with colleagues, among other things. Higher numbers are more bullish, while negative readings show insiders are dumping shares at a faster rate. The average rating of refiners tracked by Leuthold rose to 23.06 at the end of May. The score slid to a decade low minus 43.47 a year ago. ``Insiders know more about their companies than analysts or anyone else,'' said Andy Engel, 48, senior research analyst at Leuthold, a Minneapolis-based investment and research firm that oversees about $4.8 billion. ``They probably have a better idea of when business will rebound.'' Engelhardt, Grube Leuthold, which turned bearish on U.S. stocks before a 19 percent tumble in the S&P 500 starting last October, began buying refiner shares this month on speculation oil will drop to about $110 a barrel, he said. Irl Engelhardt, chairman of the Federal Reserve Bank of St. Louis, bought $509,000 worth of Valero shares last month, his first purchase since becoming a director of the largest U.S. refiner in 2006. In the same month, Tesoro director John Bookout III boosted his stake by 58 percent in the third-largest U.S. refiner. Valero and Tesoro, both based in San Antonio, have declined 39 percent and 57 percent this year. William Grube, chief executive officer at Indianapolis-based Calumet Specialty Products Partners LP, bought 50,000 shares at between $11.73 and $16.85 a share in May, data compiled by Bloomberg show. The purchases, which began two days after Calumet slumped to an all-time low, were the first by Grube since the company went public in January 2006, according to the data. Calumet, which processes oil into lubricants, solvents and waxes, has fallen 64 percent this year. Telephone messages for Engelhardt, Bookout and Grube weren't returned. Reversal of Fortune Oil and gas refiners in the S&P 1500 Composite Index plunged 6.1 percent last week after crude futures touched $139.89 for the first time on June 16. The so-called crack spread, or hypothetical profit margin for processing three barrels of crude oil into two barrels of gasoline and one of heating oil, has fallen 36 percent to $14.48 from $22.67 a year ago. Eric Green, who helps oversee $5.5 billion as director of research at Penn Capital Management in Cherry Hill, New Jersey, isn't counting on gasoline prices to catch up with crude oil. Demand for U.S. gasoline may decrease for the first time in 17 years as people drive less and buy more fuel-efficient cars, Cambridge Energy Research Associates, a Cambridge, Massachusetts- based consultant wrote in a report last week. ``These stocks can't go up with oil prices as strong as they are and demand for gasoline shrinking,'' said Green, whose firm sold its shares of Tesoro and Dallas-based Holly Corp., owner of refineries in New Mexico and Utah, in the past six weeks. ``You really want to own refiners when oil's going down, and not straight up.'' Caxton, Renaissance That hasn't kept some of the world's biggest hedge funds from betting on a turnaround. Bruce Kovner's Caxton, the $12 billion hedge fund firm based in New York, purchased or increased its shareholdings in six refiners, including Valero, Tesoro and Philadelphia-based Sunoco Inc., in the first quarter, according to Securities and Exchange Commission filings compiled by Bloomberg. Citadel, the $22 billion Chicago-based hedge-fund firm run by Kenneth Griffin, scooped up 192,610 Tesoro shares and boosted its stake in Holly almost eightfold to 190,681 shares last quarter, the data showed. Renaissance, a $30 billion hedge fund firm run by James Simons and based in East Setauket, New York, bought 609,888 shares of Valero and increased his stake in Calumet by 5.3 percent to 32,000 shares. Representatives of Caxton, Citadel and Renaissance declined to comment. Billionaire investor Kenneth Fisher says refiners are attractive even if oil prices don't decline because the U.S. hasn't built a refinery in 32 years. ``We're not going to be putting in more refineries,'' said Fisher, who oversees more than $47 billion as chairman of Fisher Investments Inc. in Woodside, California, and who owns Valero and Tesoro shares. ``Whenever there's any place where there isn't more supply, owning is not a bad thing.''
I find this extremely compelling, because not only are insiders buying (including a former St. Louis Federal Reserve Member), but Hedgies are buying with both fists, too. Ken Fisher is very bullish, too, going so far as to say refiners are even a good play if oil prices don't even fall (because of lack of refinery capacity - not a new one built in the U.S. since the 70s). If oil pulls back, bullishness will turn to mania. Maybe some 5 baggers there (WNR, ALJ, FTO, TSO).
FTO has great capacity ( as opposed to other refiners ) for processing Diesel, which just happens to enjoy a very nice; profit margin over gasoline these days ( .51 cents vs .09 cents ) because it is not being exported from Europe to the U.S. like it used to in previous years. Also, Steve Leuthold has a pretty solid track record and is one of the last technicians left on Wall Street, albeit Minneapolis.
I own a boatload of $30 calls on FTO w/January 2009 expiration date for the exact reason you cite. FTO has a near 70% sour crude refining capacity; an industry high. I think all refineries are set to run, but especially those with sour crude capacity, such as Valero, and especially, FTO. All refineries look like incredible bargains now, even with lower margins, and even if oil doesn't fall (if it does, they'll outperform any other sector this year, IMO). Plus, they will begin to be able to raise their prices whether oil breaks or not, because there's consistently been drops in gasoline inventory, even when there has been crude stock builds. America can only cut back so much on gasoline, diesel, jet fuel, heating oil and other distillates.
I'd like to wait for some better technicals before getting aggressive on the long side. But I do agree that there is some "value" in this group.
FYI: SUN just got slammed by a "downgrade" as the analyst Jacques Rousseau at Soleil sees Q-2 EPS at .80 cents from $1.00 per share. He's at $3.45 for the full year. The rest of the Street is at $1.34 for Q-2 so says Thomson Financial. Full year consensus is at $3.15 Perhaps some room for the rest of the Street to take down their numbers.
Wow!!! 16,054 contracts in July 22.5's And another 10,374 in the July 25's. And another 11,239 of the Augie 25's too! Stock's down from $65 :eek:
Anyone else going long on DUG to make a play on declining oil instead of taking on the risk of a margin call by shorting something such as USO or others? I see it as a longer term play (3-5 months).