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Calumet Specialty Products Partners LP Message Board

  • wcsg122 wcsg122 Oct 14, 2013 11:31 AM Flag

    Weighing the outlook

    I have weighed the counter points and it is possible, Q3 could be another challenging quarter, but will it matter? At present, the stock appears value priced and the cycle appears to be turning positive. In addition, although it is impossible to know the Q3 RIN expense due to the timing and volume of such purchases, we do know RIN prices have declined substantially (now 33.85 cents for October contract), and the EPA appears poised to lessen the compliance standard in the near future further mitigating this issue.

    Moreover, pipeline capacities have been expanded significantly over the last year, yet the WTI/Brent spread has widened in recent weeks and some of the discounts of other feedstocks are again, quite large. Until I see it, I question the theory that the WTI/Brent discount will be eliminated longer term. For the most part, Brent is an international pricing model. However, US crude can't be exported, while refined products can. Therefore, longer-term, if drilling continues at a hyper pace, it is possible that we could see the WTI/Brent spreads widen further as US/Canadian supplies overwhelm national demand, or at least a general feedstock price decline. Particular to this refiner, is the specialty products division. Management controls the price of these products to match demand, so a fall in feedstock prices will most likely result in margin increases for this division. For Q2, the division's realized sales prices were down a bit from the prior quarter, but still averaged $149/bbl and represented about 40% of revenues.

    In closing, Q4 is shaping up nicely. The WTI/Brent spread widened to about $9 last week, RIN prices fell again, and the GC ULSD (diesel) crack spread remained strong ( $22/bbl). This is before the benefits from the various discounted feedstocks (WCS $31/bbl). So while there are some potential short-term headwinds, I remain positive about the 2014 outlook and the future ND diesel refinery. GL

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