refining is a big business. It certainly can allow several players. How many refiners do we have? Not so many. I can only count VLO, FTO, TSO, HOC, WNR and SU.
The P/E for all these companies are very low, that means they all make real money. Yeah, The demand may go down some because of recession, but by how much. Maybe down 3%. Meanwhile, the margin for refiners will not drop (not like steel, copper, those kind of commodities). So we are talking about maybe 3% revenue drop and 3% profit drop. Not a big deal. Look how much the stock price has dropped.
I am holding my cash now. If I see a the market calm down a little, I will buy refiners. Yes, all commodity prices will go down, and profit will be hurt a big deal, oil service may take a bit hit because oil exploration companies may not spend money, but refiners should hold up very well as long as people are still driving.
There are many private, small refiners. They will have a hard time to survive.
VLO/TSO both have gas stations, when RBOB price is squeezed, the stations get a fatter margin. They will do better than those without outlets.
I am not sure about the conspiracy theory by jeff, it could also be bad planning. But the oversupply is temporary, all the refiners will have to cut output soon. They cannot afford adding more stockpiles.
Answer: They can not. Right now ( like today ! ) the refiners can not make enough heating oil to meet demand. They make good profits on heating oil/diesel/jet fuel. A "by product" of is gasoline. Once again I will explain that all refiners are not created equal ( wall street still does not get that ) . Did you see them pump and dump SUN recently . SUN is not one of the powerhouse refiners so go fiquire....Wall Street does not get it....but you can with some homework.
So there is no conspiricy...just the facts of refining playing out. Where the rubber meets the road is quarterly earnings.....Look for refiners that can make money every quarter in a tough margin environment.....that means they have the right hardware, the right financial strentgh, the right business plan,etc.
What is finally returning to normal is that all the speculation is out of the oil markets.....so now it is all about the above mentioned fundamentals.
It will take the market at least 6 more months to fiquire all this out. If you can not or choose not to be patient as a long then I recommend you exit refining stocks and buy XOM on the dips. In XOM you do not need to understand refining since they are the gold standard of all stocks ....so lower risk but also lower potential rewards.
I have been successful trading both around a core holding in VLO and XOM ...what I have learned is that it keeps me in the game and returns 7-25% annually over the past 10 years. Will it in the future ...hell I don't know....but I will stay in the game.
Good Luck......and please give up the notion that the folks running refiner economics are stupid.....that notion will get you out of the game fast.