Refiners: Their Death is ‘Greatly Exaggerated’

Yesterday, refining stocks like Valero Energy (VLO), Marathon Petroleum (MPC), Tesoro (TSO) and PBF Energy (PBF) got hammered after the U.S. government said it would allow two oil companies to export ultra-light crude oil for the first time.

The Washington Post/Getty Images

Valero Energy, for instance, plunged 8.3%, while Marathon Petroleum slid 6.3%, PBF Energy plummeted 11% and Tesoro slipped. 4.2%.

Cowen’s Sam Margolin and Jason Gabelman call the death of US refiners “greatly exaggerated.” They explain why:

So as not to bury the lede, we do not see risk to our positive 12-18 month thesis for US refiners based on Pioneer Natural Resources’ (PXD) and Enterprise Products Partners’ (EPD) recently granted permits for condensate exports. Specifically, we do not see a step change in the current regulatory framework that bans blanket crude oil exports, since stabilized condensate is more akin to a refined product than an “unrefined oil”, as characterized by media reports. The spirit of the law, that hydrocarbon liquids produced in the US must be processed in the US, remains in place, and permits for condensate exports do not constitute precedent for crude oil in our view. Comments from US officials and even from Pioneer Natural Resources in the media indicate a similar conclusion We continue to see potential for a meaningful feedstock advantage for US refiners emerging later in 2014, with a crude supply inflection point of 9MM bpd of domestic production against a Gulf Coast import baseline in the 2.8-3.0MM bpd range.

We maintain our Outperform ratings on Valero Energy, Western Refining (WNR), Marathon Petroleum , Tesoro, and PBF Energy…

Ned Davis Research’s Warren Pies and John LaForge disagree:

This export news is potentially game changing for Refiners.

This minor "tweak" of the law could free up a lot of oil for export – oil that is currently stuck at the U.S. Gulf Coast – and signal a change in the Administration's position on oil exports more broadly. It is this export ban, along with inadequate pipeline infrastructure, that has fed the Refiner outperformance you…Bottom Line: If you have Refiners in your portfolio, it is time to take some off the table.

Shares of Valero Energy have gained 2% to $52.38 at 11:37 a.m., while Marathon Petroleum has ticked up 0.1% to $81.08, Tesoro has advanced 2% to $59.57 and PBF Energy has slid 0.9% to $27.83. Pioneer Natural Resources has dropped 2.4% to $227.53.