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发表于 2009-12-21 04:08 PM
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an interesting article about oil price and refinery stocks. dollar strength along with oil price drop might energize the refinery stocks.
How Refinery Stocks are Set for Big Gains
posted October 26, 2009 - 11:46am
How Refinery Stocks are Set for Big Gains
Oil refinery stocks are on the verge of a breakout. The reason for this has nothing to do with the price or demand for oil. In fact, the oil market has already broken away from the pure fundamentals of supply and demand. This has happened because of the rampant fall
in value of the various fiat currencies around the world. For example, since oil is denominated in US dollars, and the dollar has fallen precipitously in the last few months, Middle East producers, along with Russia and other oil producing nations, have been using their dollars to buy interests in their own oil production. This strategy is actually a kind of hedge against the lower value of the dollar. As oil producers receive dollars for the sale of their oil, they in turn buy back oil futures with their dollars on the oil market, thus keeping the price oil up artificially. In some cases, this strategy has even caused the price of oil to rise. By taking this approach, the oil producing nations are able to take control of the price of oil in a market where supply and demand has caused the price generally to fall. The result is that the oil market continues to strengthen in the face of falling demand. This is good for the oil producing nations, so investors can expect their "hedge buying" of oil futures to continue into the near term future.
But what about oil refiners? These are the oil companies that generally buy oil on the open market, refine it into the many kinds of products that we all take for granted, including gasoline, motor oil, jet fuel, and many others, and then sell it to their retailers. A few refiners, like Valero for example, also possess oil fields and stocks of their own oil. This allows these "integrated" companies to produce, refine and then sell their products to retailers who are expected to sell their products to other businesses and to the public. But most oil refiners are not integrated, and therefore forced to buy their oil on the open market. After refining their oil, these companies turn around and distribute their refined products to various retail customers around the world. These non integrated companies are pretty much at the mercy of the oil producers to attain the raw materials they need to run their businesses. And if the price of oil is rising on the futures market, these non integrated refiners are faced with a real problem. The demand for their products may be dropping, while the price of the oil they refine is rising. This is a formula for financial disaster, unless of course these refineries can control the retail markets for their products, and produce just enough to create sufficient demand and price. This is exactly what is beginning to happen right now. Refiners are generally shutting down many of their less efficient refinery sites, and continuing to conduct their refinery businesses with less capacity. The result of this "less is more" policy is that the supply of gasoline and other related refined oil products is beginning to shrink with a resulting rise in product price.
In terms of oil stocks and the Stock Market, this "less is more" policy on the part of the refiners is a great opportunity for investors. As refiners lower their capacity and continue to produce less and less of their products such as gasoline, and all of their other products, prices will rise in the retail market place. This means big profits for these companies. On top of it all, these stocks are generally down and in disfavor. Right now, I like four stocks in this area of the oil patch, at least for the next six months. They are: SU, CVI, VLO and IMO. All of these companies are gaining control of their retail product markets, and therefore, gaining control of market demand. This means that their stock prices are poised to move up briskly.
For disclosure purposes, I should tell you that I own VLO. The other shares I am offering here are on my "to buy" list.
As oil producing nations continue to prop up the price of oil on the world markets through their own continued purchases of oil futures, expect the refiners to benefit. This gain in oil price can only add to the refiner's potential for appreciation, particularly as their policy of "less is more" causes their products to become more and more scarce in their respective retail markets. Scarcity can only force share prices to rise even more. |
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