Matt Badiali Says Refiners Stand to Gain from Oil’s Selloff
Sep 10th, 2008 | By Matt Badiali | Category: Featured, Financial NewsToday, despite mixed signals from OPEC on a reduction in its oil output crude oil prices are nearing $100 a barrel. This is not the kind of news commodities bulls want to hear.
However, Matt Badiali in The Growth Stock Wire says lower crude oil prices should be good news for fuel refiners. When oil prices were in the stratosphere this summer, refiners lost out because demand for gas dropped hard.
Matt says refiners’ stock is rising and should continue to do so, as long as we don’t see another spike in crude prices…
This from Matt:
From an investors’ prospective, refining seems like a bulletproof investment. These companies have a huge “moat” because you can’t build new refiners. And they supply a necessary commodity – it’s not as if you can turn to some other fuel for your car if the price goes up.
But Americans parked their cars when the price of gasoline hit $4 a gallon. So not only were refiners losing money on the margins, they sold fewer gallons.
For example, Sunoco – an average U.S. refiner – lost $91 million on its refining business during the first half of 2008. It earned $558 million in that same period in 2007. Shares of the company are down 46% from their 52-week high.
However, those shares are also up 35% since early July, when they bottomed. Barring another spike in the oil price, I think refiners’ share prices will come up. But thousands of companies out there make much better margins than refiners. It’s a cyclical business… and tough to make money on in the long term.
Source: Are Refiners a Buy at Last?
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Matt Badiali is the editor of the S&A Oil Report, a monthly investment advisory that focuses primarily on oil as an investment from small exploration outfits, to equipment companies, to the biggest oil companies in the world. He is also a contributor to the Daily Wealth.
