Things you must know before investing in the US refining industry
The star stocks and stellar returns of the US refining industry (Part 2 of 7)
Refining
While unrefined oil, or petroleum, was used by ancient civilizations, refining was only invented in the mid-nineteenth century, when Canadian Abraham Gessner produced kerosene from coal. In the years following the second world war, technology quickly developed to give us today’s highly complex refineries. We don’t usually see these facilities, but they quietly churn out the essential fuels and building blocks for the world’s economy.
As the table above shows, the U.S. refining industry is the largest national refining industry in the world. It has a refining capacity of roughly 18 million barrels per day. To put this number into perspective, this is about 20% of the world’s oil demand.
Major companies
Not only does the U.S. have some of the largest refineries worldwide, but it’s also home to some of the largest independent refining companies. These include the world’s largest independent refiner (only involved in the business of refining and marketing) Valero Energy (VLO), with a throughput capacity of roughly 3 million barrels per day, Phillips 66 (PSX) with a capacity of just over 2 million barrels per day, and Marathon Petroleum (MPC) with a capacity of just under 2 million barrels per day.
These “big three” refiners are followed by Tesoro (TSO) and PBF Energy (PBF) with capacities of just under a million and roughly half a million barrels per day, respectively.
Key ETFs
The PowerShares Dynamic Energy Exploration & Production Portfolio ETF (PXE) is an easy way to gain diversified exposure to some of these refining companies. You can also use the Energy Select Sector SPDR Fund (XLE) ETF to gain exposure to the energy sector. But XLE doesn’t have pure refining companies among its top ten holdings.
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