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Charles Kennedy

Charles Kennedy

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Refiners Pursue More Pipelines amid Big Gains

New pipelines may provide new revenue for US refiners, which have seen big gains in 2012 and are now seeking to ride the wave of success.

HollyFrontier Corp (NYSE:HFC), Phillips 66, Tesoro Corp. (NYSE:TSO), Marathon Petroleum Corp. (NYSE:MPC), Valero Energy Corp. (NYSE:VLO) are among those refiners to keep an eye on as margins for turning oil into gasoline narrow.

Why have refiners seen gains of over 85% for 2012? Look at the margins. Because of a glut in US production, these refiners have been able to purchase oil at an average of $17.46/barrel BELOW the global benchmark. This year should see an even better margin.

This margin could narrow by close to 70% with new pipelines. If this happens, refiners are set to have an even better year.

Related Article: Iranian Gas and the Nabucco Pipeline Realities

Now it’s all about pipeline expansion. More than 20 new pipelines are scheduled to become operational in 2013—meaning more oil routed to more buyers. Refiners are seeking to cut in on this link and remove the middle man.

It’s a good enough plan to have Standard & Poors 2012 index list refiners fourth out of 154 industry groups. 

Phillips 66 and Marathon are leading the run on pipelines, and investors are taking note—investors like Warren Buffet, on whose word the market seems to hang.

Buffet—the owner of Berkshire Hathaway Inc.—is betting on refiners for 2013. He likes the diversification. 

Related Article: As Canadian Crude Plummets, Find the Natural Gas Opportunity

Now it’s down to picking the best refiner to bet on. Marathon and Tesoro seem to be the in the top-running. In October, Marathon created a $2.2 billion pipeline unit. Marathon rose 86% in 2012 and provided the highest shareholder returns (91%).

Tesoro saw its share price jump 6.4% over the course of 2012 and saw the biggest profit gains per share price.

Phillips 66, though, is still a favorite and has spiked over 50% since it was let loose in May from ConocoPhillips, and investors are eyeing its plans to create an MLP (master limited partnership) this year with pipeline assets.

HollyFrontier managed to double its value.

By. Charles Kennedy of Oilprice.com


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