Ironically, one of the sectors hardest hit by sky-high oil prices is oil refineries. The reasons are two-fold: their raw material, oil, is now significantly more expensive consumer demand for oil is down as Americans deal simultaneously with a recession and soaring oil prices Citi dismisses this year as "lost" for refiners, but the bank believes there is great value remaining in the sector. The key is Canada: ... we believe strategic value exists for refiners in the Midwest and Gulf Coast from steady and growing streams of Canadian heavy crude . Furthermore, the economics of building upgrading and refining capacity in Canada is becoming increasingly uneconomic given the cost advantage of assets here in the US. We estimate US refiners could command a $20-$27 per barrel advantage versus new upgrading capacity in Alberta. Furthermore, we estimate Gulf Coast refiners have a $9 per barrel advantage on proposed export refineries in the Middle East. Citi recommends Valero Energy (VLO) as best of its class--even though Citi cut its estimates by 40%: We believe VLO will outperform its peers over the next 6- 12 months given its advantaged crude slate and ability to be profitable in this difficult environment. See Also: Valero Energy (VLO): Refineries Just Can't Catch A Break ( VLO ) Why Oil Refineries Are Getting Clobbered ( XOM , TSO , SUN , VLO ) ...
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Ironically, one of the sectors hardest hit by sky-high oil prices is oil refineries. The reasons are two-fold: their raw material, oil, is now significantly more expensive consumer demand for oil is down as Americans deal simultaneously with a recession and soaring oil prices Citi dismisses this year as "lost" for refiners, but the bank believes there is great value remaining in the sector. The key is Canada: ... we believe strategic value exists for refiners in the Midwest and Gulf Coast from steady and growing streams of Canadian heavy crude . Furthermore, the economics of building upgrading and refining capacity in Canada is becoming increasingly uneconomic given the cost advantage of assets here in the US. We estimate US refiners could command a $20-$27 per barrel advantage versus new upgrading capacity in Alberta. Furthermore, we estimate Gulf Coast refiners have a $9 per barrel advantage on proposed export refineries in the Middle East. Citi recommends Valero Energy (VLO) as best of its class--even though Citi cut its estimates by 40%: We believe VLO will outperform its peers over the next 6- 12 months given its advantaged crude slate and ability to be profitable in this difficult environment. See Also: Valero Energy (VLO): Refineries Just Can't Catch A Break ( VLO ) Why Oil Refineries Are Getting Clobbered ( XOM , TSO , SUN , VLO ) ...