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Oil Below $70: Buy These 2 Refiners Before the Next Rally
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Key Takeaways
Oil below $70 may create opportunities for refiners as crude costs ease from elevated levels.
PSX may benefit from lower oil prices and a diversified model spanning midstream and chemicals.
PARR's varied crude sources and Canadian heavy oil exposure may support its cost advantage.
The oil-energy sector continues to be at the top of the major events capturing investors' attention. The market recently witnessed a significant fall in oil prices, thanks to encouraging comments from Qatar about progress in indirect negotiations between the United States and Iran that were concentrated mostly on the Strait of Hormuz, which is responsible for significant volumes of global oil supply. This pullback from elevated crude prices has been reshaping the energy landscape and creating opportunities for many companies in the sector.
It is noteworthy that two leading refiners, Phillips 66 (PSX - Free Report) and Par Pacific (PARR - Free Report) , have jumped 37.1% and 86.9%, respectively, over the past year. Can the recent developments aid the operations of the two energy players and help them sustain their momentum?
Image Source: Zacks Investment Research
Bet on 2 Refining Stocks Right Away: PSX, PARR
West Texas Intermediate (“WTI”) oil is currently trading below $70 per barrel, according to data from Oilprice.com, significantly lower than the more than $100 per barrel reached in May this year. Phillips 66, currently carrying a Zacks Rank #2 (Buy), is likely to gain from the softer crude pricing environment. This is because PSX, a leading refining company, is now able to purchase oil at a lower cost, enabling the production of end products.
Although a leading refiner, PSX, unlike most of its refining peers, has diversified its business across midstream and chemicals. It is to be noted that the midstream business, by its very definition, is resilient since it generates stable cash flows as the assets are being utilized for the long term, and is less vulnerable to commodity price volatility. Hence, having a diversified business model, the large-cap stock is insulated from commodity price volatility to a great extent. Given the strength and resilience of its business model, Phillips 66 has significant room to continue its upward trajectory.
While the lower oil price is a positive for refiners like Par Pacific, several other factors are aiding the company’s refining business that investors should keep in mind.
Instead of relying on a single source of crude, PARR has been depending on crude from a variety of sources, comprising U.S. inland oil fields, imported oil delivered by ship and Canadian heavy crude.
Notably, a significant portion of crude oil sources is waterborne, while 22% consists of Canadian heavy oil. While exposed to multiple sources, Par Pacific has the option to switch if the price of one crude oil type rises.
Additionally, having exposure to Canadian heavy oil, which is cheaper than lighter crude, the #2 Ranked Par Pacific is likely to have been enjoying a cost advantage. In other words, the refining player has been capable of using lower-priced fuel to produce high-value end products, giving it an edge over other refiners and helping it continue its upward trajectory. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
View the Zacks #1 Rank List
Image: Bigstock
Oil Below $70: Buy These 2 Refiners Before the Next Rally
Key Takeaways
The oil-energy sector continues to be at the top of the major events capturing investors' attention. The market recently witnessed a significant fall in oil prices, thanks to encouraging comments from Qatar about progress in indirect negotiations between the United States and Iran that were concentrated mostly on the Strait of Hormuz, which is responsible for significant volumes of global oil supply. This pullback from elevated crude prices has been reshaping the energy landscape and creating opportunities for many companies in the sector.
It is noteworthy that two leading refiners, Phillips 66 (PSX - Free Report) and Par Pacific (PARR - Free Report) , have jumped 37.1% and 86.9%, respectively, over the past year. Can the recent developments aid the operations of the two energy players and help them sustain their momentum?
Bet on 2 Refining Stocks Right Away: PSX, PARR
West Texas Intermediate (“WTI”) oil is currently trading below $70 per barrel, according to data from Oilprice.com, significantly lower than the more than $100 per barrel reached in May this year. Phillips 66, currently carrying a Zacks Rank #2 (Buy), is likely to gain from the softer crude pricing environment. This is because PSX, a leading refining company, is now able to purchase oil at a lower cost, enabling the production of end products.
Although a leading refiner, PSX, unlike most of its refining peers, has diversified its business across midstream and chemicals. It is to be noted that the midstream business, by its very definition, is resilient since it generates stable cash flows as the assets are being utilized for the long term, and is less vulnerable to commodity price volatility. Hence, having a diversified business model, the large-cap stock is insulated from commodity price volatility to a great extent. Given the strength and resilience of its business model, Phillips 66 has significant room to continue its upward trajectory.
While the lower oil price is a positive for refiners like Par Pacific, several other factors are aiding the company’s refining business that investors should keep in mind.
Instead of relying on a single source of crude, PARR has been depending on crude from a variety of sources, comprising U.S. inland oil fields, imported oil delivered by ship and Canadian heavy crude.
Notably, a significant portion of crude oil sources is waterborne, while 22% consists of Canadian heavy oil. While exposed to multiple sources, Par Pacific has the option to switch if the price of one crude oil type rises.
Additionally, having exposure to Canadian heavy oil, which is cheaper than lighter crude, the #2 Ranked Par Pacific is likely to have been enjoying a cost advantage. In other words, the refining player has been capable of using lower-priced fuel to produce high-value end products, giving it an edge over other refiners and helping it continue its upward trajectory. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.