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A Company that Stands to do Well from the Collapsing WTI-Brent Spread

By Dan Dicker | Fri, 10 May 2013 20:33 | 0

Another week away from my usual trading desk in New York does lead to a different and useful perspective on energy events without concentrating on the minute movements on my screens, specifically concerning Hess (HES) and PBF Energy (PBF) – both of which I’ve been thinking about.

Here at this small conference on the West coast where I’ve had a chance to talk to a few different voices in the middle of the energy space, there are a few brewing stories that I’ve gotten some interesting and intelligent views – and might even lead to an investment idea.

First is an update on a call I made correctly in WTI-Brent oil spreads which have quickly collapsed in: to close to $7 dollars this week.  I made clear in recent columns that this spread move would do two things:  give a false positive move to domestic WTI prices, hiking them closer to $100 a barrel, and deliver some bad news to refiners, particularly those in the mid-continent, which have benefited from wide margins for much of the last two years.  On crude prices, the $100 WTI price should not be seen as a necessary prelude to $4 a gallon gas, but merely domestic grades ‘catching up’ to the global prices that have been not just steady, but in fact weakening for the past 2 quarters – a ‘fake’ rally, if you will.  Second, there have been a few energy guys here who have tried to convince me that the quick drop in the WTI/Brent spread is more…

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