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Time to Buy These 3 Refinery Stocks Swamped by Oil's Fall
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Oil prices logged their third weekly fall in a row on Friday, dragged down by familiar fears revolving around high inflation and slowing growth. Futures in New York settled at $85.11 a barrel, while Brent — the international benchmark — closed at $91.35. Both contracts have lost around 20% so far this quarter.
With most Oil/Energy stocks highly dependent on commodity prices, it is no surprise that the pullback has resulted in downward pressure on the sector components. But based on fundamentals, experts see this negative price action as a transient stoppage in an otherwise strong energy environment, which continues to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine.
In particular, the Zacks Oil and Gas - Refining & Marketing industry seems to be one sub-sector that has become an unfortunate casualty of this oil slide. Even as fuel product supply remains constrained due to capacity rationalization triggered by the pandemic and demand continues to show strength on the pent-up desire for travel, some of the largest downstream companies have dropped precipitously over the past few weeks.
In other words, this presents a compelling buying opportunity in top-ranked refining stocks like PBF Energy (PBF - Free Report) , Valero Energy (VLO - Free Report) and Phillips 66 (PSX - Free Report) .
Refining & Marketing Industry Drivers
With the Russia-Ukraine conflict showing no signs of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group (OPEC+) agreeing on a production curtailment, crude has enough reasons to stay elevated in the near-to-medium term.
As it is, the downstream companies have been supported by a marked improvement in refined products consumption — primarily gasoline and diesel — on the back of increasing vaccinations and mobility. Per the U.S. Energy Department's latest release, gasoline inventories are around 6% below the five-year average, signaling robust oil product usage in the market. In other words, this indicates surging consumption of gasoline, diesel and other refined products. As economic activity remains quite hot (with no visible sign of an imminent recession) and Americans take to the road with a vengeance amid the post-pandemic recovery, refined products usage should continue to gain traction throughout 2022. The refiners have also benefited from increased summer driving and accelerating international travel.
The industry’s improved fundamentals in the form of constrained supply and robust demand have led to rising refining profitability for the players involved. With product inventories running low and no near-term solution to replenish them, margins (especially for diesel and jet fuel) have set all-time highs. While margins have moderated from those spectacular levels, they are still reasonably high. Overall, elevated consumption paired with considerably lower refining capacity in the OECD countries should provide a tailwind for refinery profits throughout the year. In particular, constrained Russian fuel exports in the wake of the Ukraine conflict have further tightened refining fundamentals.
Buy the Dip
All this adds up to the Zacks Oil and Gas - Refining & Marketing group currently carrying a Zacks Industry Rank #8 — placing it in the top 3% of more than 250 Zacks industries. The group’s excellent position indicates fairly strong near-term prospects for its constituent companies.
With the refining outlook looking up, savvy investors could use the pullback as an opportunity to buy their favorite stocks at a discount. We have narrowed down our search to three companies that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) but are down at least 7% over the past month.
PBF Energy: PBF Energy has one of the most complex refining systems in the United States. As a result, this Zacks Rank #1 firm has the capacity to generate lighter and better grades of refined products. PBF’s daily processing capacity of 1,000,000 barrels of crude is higher than most of its peers.
Over the past 60 days, Parsippany, NJ-based PBF has seen the Zacks Consensus Estimate for 2022 jump 51.6%. PBF Energy beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 78%.
Valero Energy: Among all the independent refiners, Valero offers the most diversified refinery base with a capacity of 3.1 million barrels per day in its 15 refineries located throughout the United States, Canada and the Caribbean. The majority of VLO’s refining plants are located in the Gulf coast area, from where there is easy access to the export facilities.
The Zacks Consensus Estimate for Valero’s 2022 earnings has been revised 11.7% upward over the past 60 days. VLO, headquartered in San Antonio, TX, has a projected earnings growth rate of 878.7% for 2022. It has a Zacks Rank #2.
Phillips 66: Phillips 66 is one of the leading refining players in terms of size, efficiency and strength. The company buys, sells and refines crude oil and other feedstocks at its refineries. PSX, with a throughput capacity of 2 million barrels per day, owns interest in 12 refineries located in the United States and Europe. Moreover, it owns 7,110 branded U.S. outlets and 1,700 international ones.
Over the past 60 days, this Houston, TX-based Phillips 66 has seen the Zacks Consensus Estimate for 2022 improve 11.9%. PSX carries a Zacks Rank of 2. It beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 30.4%.
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Time to Buy These 3 Refinery Stocks Swamped by Oil's Fall
Oil prices logged their third weekly fall in a row on Friday, dragged down by familiar fears revolving around high inflation and slowing growth. Futures in New York settled at $85.11 a barrel, while Brent — the international benchmark — closed at $91.35. Both contracts have lost around 20% so far this quarter.
With most Oil/Energy stocks highly dependent on commodity prices, it is no surprise that the pullback has resulted in downward pressure on the sector components. But based on fundamentals, experts see this negative price action as a transient stoppage in an otherwise strong energy environment, which continues to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine.
In particular, the Zacks Oil and Gas - Refining & Marketing industry seems to be one sub-sector that has become an unfortunate casualty of this oil slide. Even as fuel product supply remains constrained due to capacity rationalization triggered by the pandemic and demand continues to show strength on the pent-up desire for travel, some of the largest downstream companies have dropped precipitously over the past few weeks.
In other words, this presents a compelling buying opportunity in top-ranked refining stocks like PBF Energy (PBF - Free Report) , Valero Energy (VLO - Free Report) and Phillips 66 (PSX - Free Report) .
Refining & Marketing Industry Drivers
With the Russia-Ukraine conflict showing no signs of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group (OPEC+) agreeing on a production curtailment, crude has enough reasons to stay elevated in the near-to-medium term.
As it is, the downstream companies have been supported by a marked improvement in refined products consumption — primarily gasoline and diesel — on the back of increasing vaccinations and mobility. Per the U.S. Energy Department's latest release, gasoline inventories are around 6% below the five-year average, signaling robust oil product usage in the market. In other words, this indicates surging consumption of gasoline, diesel and other refined products. As economic activity remains quite hot (with no visible sign of an imminent recession) and Americans take to the road with a vengeance amid the post-pandemic recovery, refined products usage should continue to gain traction throughout 2022. The refiners have also benefited from increased summer driving and accelerating international travel.
The industry’s improved fundamentals in the form of constrained supply and robust demand have led to rising refining profitability for the players involved. With product inventories running low and no near-term solution to replenish them, margins (especially for diesel and jet fuel) have set all-time highs. While margins have moderated from those spectacular levels, they are still reasonably high. Overall, elevated consumption paired with considerably lower refining capacity in the OECD countries should provide a tailwind for refinery profits throughout the year. In particular, constrained Russian fuel exports in the wake of the Ukraine conflict have further tightened refining fundamentals.
Buy the Dip
All this adds up to the Zacks Oil and Gas - Refining & Marketing group currently carrying a Zacks Industry Rank #8 — placing it in the top 3% of more than 250 Zacks industries. The group’s excellent position indicates fairly strong near-term prospects for its constituent companies.
With the refining outlook looking up, savvy investors could use the pullback as an opportunity to buy their favorite stocks at a discount. We have narrowed down our search to three companies that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) but are down at least 7% over the past month.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
PBF Energy: PBF Energy has one of the most complex refining systems in the United States. As a result, this Zacks Rank #1 firm has the capacity to generate lighter and better grades of refined products. PBF’s daily processing capacity of 1,000,000 barrels of crude is higher than most of its peers.
Over the past 60 days, Parsippany, NJ-based PBF has seen the Zacks Consensus Estimate for 2022 jump 51.6%. PBF Energy beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 78%.
Valero Energy: Among all the independent refiners, Valero offers the most diversified refinery base with a capacity of 3.1 million barrels per day in its 15 refineries located throughout the United States, Canada and the Caribbean. The majority of VLO’s refining plants are located in the Gulf coast area, from where there is easy access to the export facilities.
The Zacks Consensus Estimate for Valero’s 2022 earnings has been revised 11.7% upward over the past 60 days. VLO, headquartered in San Antonio, TX, has a projected earnings growth rate of 878.7% for 2022. It has a Zacks Rank #2.
Phillips 66: Phillips 66 is one of the leading refining players in terms of size, efficiency and strength. The company buys, sells and refines crude oil and other feedstocks at its refineries. PSX, with a throughput capacity of 2 million barrels per day, owns interest in 12 refineries located in the United States and Europe. Moreover, it owns 7,110 branded U.S. outlets and 1,700 international ones.
Over the past 60 days, this Houston, TX-based Phillips 66 has seen the Zacks Consensus Estimate for 2022 improve 11.9%. PSX carries a Zacks Rank of 2. It beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 30.4%.