Two energy ideas to touch upon today, now that the debt ceiling debacle is (at least for now) over: Refiners and the back of the crude curve.
Refiners have caught a bid recently and, out of the blue, some of them have rallied more than 10% in less than two weeks. The downturn in these stocks was fairly easy to see coming, even if it was overdone – but the subsequent rally in the shares was far less easy to see.
I’ve thought that through the 3rd quarter we’d see a compression of the WTI/Brent spread, a proxy for cracks and refining margins. From that compression, we’d see a less than stellar report from the refiners come October and some stock weakness.
For a brief moment during the 3rd quarter in fact, we even saw WTI prices go over Brent, proof that – once again – oil traders are constantly befuddled by this benchmark ratio and how to play it (and I include myself in this characterization).
Difficulty in Libyan supplies, squeezing Brent, combined with a few mid-con refining outages here in the US, caused a further surplus of crude in Cushing. Together, they’ve pushed the spread back out between the two benchmarks to close to $10 in very short order – catching a load of traders both short the spread and short the refiners.
But is this quick trend buyable? Should we reload on refining stocks today?
You’d intuitively think not – both physical…