For Immediate Release
Chicago, IL – April 4, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Enterprise Products Partners (EPD), Enbridge (ENB), HollyFrontier (HFC), Tesoro (TSO) and Marathon Petroleum (MPC).
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Here are highlights from Tuesday’s Analyst Blog:
Refiner Sweet Spot to End?
One of the few industry bright spots in the energy sector in the quarter past were the refiners. After getting beaten down in November and December on news that the north-flowing Seaway petroleum pipeline would be reversed to help relieve the glut of crude oil in Cushing, OK, refiners had a strong January and February as North American production outstripped pipeline capacity from North Dakota to Texas while the pipeline reversal was still being engineered.
Barron's ran a story last weekend about how this trend was soon due to reverse as the Seaway reversal soon became fully operational this quarter. The pipeline runs a 500-mile stretch from Freeport, Texas on the Gulf coast south of Houston to Cushing and currently has a capacity of 150,000 barrels per day.
The joint operators Enterprise Products Partners (EPD) and Enbridge (ENB) initially announced in November plans to boost capacity to over 400,000 barrels by 2013 and last week they said they expect improvements to allow over 800,000 barrels per day in 2014.
And the whole idea of eliminating the glut of landlocked West-Texas Intermediate light sweet crude oil (WTI) got a boost last week when President Obama did a photo-op stop in Cushing to vow his support for another south-flowing pipeline: the southern leg of the Keystone XL.
Many Republicans felt this was merely a publicity stunt to draw attention away from his rejection of the northern portion of TransCanada's proposed link that was routed through an environmentally-sensitive area of Nebraska -- especially when the existing project to move oil from north to south didn't need Presidential approval, and wouldn't be complete until 2014, therefore having no effect on gasoline prices in the short-run.
Refining Margins to Get Squeezed.. But How Soon?
In the Barron's piece, "Going with the Flow," Bill Alpert suggests that once these two south-flowing pipelines are fully operational, North American crude production from Canada and the Bakken shale will narrow the spread between WTI and Brent crude. Currently, refiners benefit greatly as they buy crude, often below WTI prices, and market gasoline based on Brent prices which have averaged about $20 higher.
But until these pipelines are fully operational, Midwest refiners may continue to reap the benefits of abundant North American crude and steady-to-rising WTI-Brent prices. Here are the results of a basic stock screen I ran this morning on Zacks.com using simple parameters and not even looking for refiners:
Market Cap greater than $2 billion
Percentage increase in 2012 earnings estimates greater than 10%
Forward P/E less than 15
Zacks Rank of #1 (strong buy) or #2 (buy)
Note that these simple parameters gave us three refiners -- HollyFrontier (HFC), Tesoro (TSO) and Marathon Petroleum (MPC) -- because they are strong candidates to have both low valuations and recently rising earnings estimates. And MPC may be the most intriguing idea here as they have leverage to something the other refiners don't: a pipeline. While most refiners discussed have between 75% and 100% exposure to inland crude, MPC is a 1/3 owner of the giant Capline oil conduit.
Even More Liquidity
This was actually the most interesting and fresh piece of information from Alpert's article: the possibility of a third pipeline that could be reversed to carry crude and possibly Canadian oil sands from central Illinois to Texas.
The Capline has pumped offshore oil north from Louisiana's Gulf Coast to the oil hub of Patoka, Ill., since the 1960s. Alpert offers this dramatic quote to illustrate the potential for change in global oil markets if North American supply is fully exploited:
"Opening all these pipelines will relieve the stocks at Cushing and wipe out the Brent-WTI spread," says a money manager who is short the refiners, and who asked that we not use his name.
Granted, this is a bold prediction by an unnamed trader who would benefit financially from the result. Still, the idea is worth considering as a potentially far-reaching event for energy markets.
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