Click here for recent Market Insight reports on our Refiners theme →

July 3, 2019

Adding LONG Refiners & Suspending LONG US Energy, Crude Oil, and Oil & Gas Services

2019 has been an interesting year for the gasoline market. The year started out with some of the strongest stock levels ever seen in the history of the commodity. Then, those inventories began collapsing in March as refining runs fell and remained weak. In fact, the year-to-date (YTD) draw in gasoline this Spring was one of the largest ever recorded in North America for that time of year. On top of this, a record high 41.4 million Americans are expected to travel by automobile this Independence Day, according to global transportation analytics company INRIX. Furthermore, INRIX estimated that 37.6 million people drove during Memorial Day weekend 2019 — also the most on record for that holiday and 3.5% higher than last year. And, according to GasBuddy’s 2019 Summer Travel survey, 42% of Americans who are taking a road trip this summer will be driving more than 500 miles round trip, compared to 31% in 2018. The summer travel period is defined as May 24 to September 2.


It seemed like that inventory would be replenished with a pickup in refinery activity in the second half of the year, however a massive explosion and fire at the Philadelphia Energy Solutions (PES) complex in Pennsylvania has forced the biggest refinery on the US East Coast to permanently shut down. The loss of the PES refinery, which accounts for 27% of that region’s refining capacity, has already caused gasoline prices to go up in the Northeast and may cause a domino effect across the nation.


The EIA expects gasoline retail prices to average $2.92/gal for the 2019 summer driving season, up from an average of $2.85/gal last summer and their current level of $2.74/gal. Ken Robinson, a research analysts at Motus, predicts a price range between $2.90 and $3.15 for Q3 2019.


Higher gasoline prices, combined with OPEC’s latest production cuts and the possibility of a widening in the crack spread, should improve profit margins for all US refiners. Therefore, MRP is adding LONG REFINERS to our list of themes. We will track this theme with the VanEck Vectors Oil Refiners ETF (CRAK).


While MRP still believes WTI crude will enter the $60-$80 per barrel range going forward toward the end of the year, valuations of major producers and servicers of crude oil and raw energy goods have not followed the large run ups to that level over the last 2 years. As a result, MRP now sees higher crude prices creating a disruptive opportunity in finished energy products like gasoline and we are suspending our LONG OIL & US ENERGY Theme, as well as LONG OIL & GAS SERVICES theme.


MRP launched Long Oil & US Energy on April 8, 2016. Since then, the price of WTI crude increased just shy of 50%, while the Energy Select Sector SPDR Fund (XLE) rose only 2%. Over the same span the S&P 500 returned 45%.


MRP launched Long Oil & Gas Services on December 23, 2016. Since then, the VanEck Vectors Oil Services ETF (OIH) declined 56% versus an S&P 500 gain of 31%.