Took a small hit on VLO/TSO back in June but I am loading up on TSO VLO here. Bylo your idea was good on this group just a little early. Any reason you favor FTO?
maybe we are all wrong and should just trade the crack spread directly. I mean if these smaller refiners have more upside because they are more risky, why not lever more on VLO, the dollar return will be the same. or maybe the crack spread
Mvic, unless I'm mistaken, I do believe FTO has the highest sour crude throughput refining capacity of any refinery, at around 70% of total capacity, so it will have a cost advantage being able to buy a much larger portion of sour crude as its feedstock than competitors can. I believe has that Valero has the second highest sour crude refining capacity. That advantage should really begin to come into play near these levels.
Thanks ByLo, looks interesting. Here's a site that has some useful info: http://www.petrostrategies.org/Graphs/Refinery_Distillate_Production.htm This graph is particularly interesting. It appears that whenever distillate production falls the refiners take a dip shortly thereafter as would be logically expected. Look at distilate production ramp the last few months, bodes very well for the sector. Also of note is the difference between the % increase in distilate prices vs the % increase in crude prices since January. Also distilate vs gasoline yeilds suggest that refiners have been focusing on the products that give them the biggest margins. List of US refiners and capacity: http://www.eia.doe.gov/neic/rankings/refineries.htm
I think this explains it: Once you consider that the crack spread is computed in terms of the benchmark West Texas Intermediate (WTI) crude, the situation doesn't look so dire. No one in her right mind would run WTI when she had the ability to run heavy stuff available at a $28+/barrel discount, which was the actual light/heavy differential at Cheyenne. Add in a roughly $7 sour crude differential, and you can see why Frontier still made a decent chunk of change in the quarter. Question I have about FTO is what happened in the last quarter of 07 to significantly change their cash position? Was it hedging activities that went against them? Looks like the best play is VLO and FTO not TSO.
They had a fire at their Cheyenne, Wyoming refinery and burned up $10 million in lost production and maintenance expenses incurred in fixing everything. That is a big "hit" when you are only reporting about $43 million in net income. They made money in Q4 on diesel, but the gasoline cracks ran negative for most of December in the Rockie Mountain market. Their earnings are out this morning. Horrible.
Crack spread is backwardated. Gasoline side of the crack is awful, they are floating along on the distillates at the moment. Sep crack- $9.3478 Sep gas crack- $5.7862 Oct crack- $7.23 Oct gas crack- $1.77 :eek:
A solid day for VLO so far. A close above 35.27 would be most constructive and show signs the stock has bottomed. SUN is the leader in the group. No more maintenance scheduled for the rest of 2008. Stock trading comfortably above all significant daily MA's.