Refiners Jump On Oil, Crack- Way Overdone
Posted by zmann on September 30, 2006
The 3-2-1 gross crack spread ended the week at 5.15/ bbl, up a tad (2.7%) . This week’s refiner performance: SUN up 5% VLO up 7%, TSO up 7%, HOC 10%, and WNR up a whoping 15%.
Commodities caught an End of Quarter (EOQ) bounce with crude oil (CL) ending up 2.4%, unleaded gasoline (HU) up 2.2% and heating oil (HO) up 2.8%. This was a late Friday bounce driven by technicals (the chart kind, not a bunch of guys with guns in the back of a pickup) and I think it will falgter Monday, especially when the Saudis remain quiet early next week.
This is EOQ crap and I really like WNR short after the GI a few weeks back and especially b/c I called the decline at $25 and watch it fall to $20. Unfortunately it’s thinly tradded and you can drive a truck through the spread on those options – although after the hugh run on underlying this week, I’m going to throw out a middling bid on some in and out of the money November puts. HOC and FTO also stand out for their high forward multiples and both have options. On the next bounce (following the next dip) both of whcih I expect to occur in early October, I”m likely to swap out of VLO for HOC. Product inventories remain bloated, the Iranian nukes (sorry, nuclear power program) crap is on everyone’s backburner during election season, and the real OPEC players appear to be disinclined to cut production when people are still willing to buy $60 ish oil.
I’ll be posting short and long-term 3-2-1 crack spread charts in the Crack Update page soon. in case you’re wondering the 3-2-1 crack is the theoretical gross profit derived from producing 2 barrels of gasoline, 1 barrel of heating oil (distillate) and subtracting the 3 barrels of oil you bought to make them. Crack spreads hit record levels after Katrina and now they’re coming back down to Earth. Anyway, you’ll see when I post them.