Recently the refiners have sold off as the spread between WTI crude and Brent narrowed along with the crack spread. However, as more capacity to transport and product US crude comes on line, the WTI – Brent spread should widen back out, which gives refiners like PSX a leg up on the global competition.
The export market is one of the biggest opportunities for growth among US refiners. The US is amidst a major shift from a large energy importer to an exporter, especially of refined products. Right now Mexico is the US’s largest export market for refined products because US refineries are more capable of refining heavy sour Mexican crude. I like the refiners at these levels, and am willing to buy calls on them to reduce downside risk in this volatile sector. This morning we bought MPC calls for clients, which is our top pick in the sector. We expect Marathon to do well for all the reasons PSX is set to gain, but their advantage is that they already have 8,300 miles of pipelines, which allows its 7 refiners, with 1.69 million barrels per day capacity, access to cheap Canadian and Bakken crudes.