Refiner ETF Could Shake Off Energy Market Weakness
This article was originally published on ETFTrends.com.
Oil refiners and sector-related ETF could continue to pump out profits as they capitalize on the differential between cheap landlocked crude oil and refined energy products.
The VanEck Vectors Oil Refiners ETF (CRAK) , the only exchange traded fund dedicated to oil refiners, increased 2.9% year-to-date, compared to the 4.3% decline for the S&P Energy Select Sector Index.
The energy renaissance in North America has rapidly increased crude oil production from Texas to Canada, which has also overwhelmed the inadequate infrastructure and pipelines needed to transport the commodity, leading to depressed prices in some regions, the Wall Street Journal reports.
However, the cheaper crude oil has been a boon for oil refiners, like Phillips 66 and HollyFrontier Corp., that capitalized on the difference between their cheap input costs and higher end prices for refined goods like gasoline and diesel.
“U.S. refining has really gone from being a dog to being a fairly attractive business model,” John Auers, an executive vice president at consultancy Turner, Mason & Co., told the WSJ. “I don’t think that’s going to change any time soon.”
Phillips 66, which says it is the largest industry buyer of Canadian crude, operated nearby refineries at 108% of capacity during the third quarter, generating an average profit of $23.61 per barrel processed at the locations, which lifted quarterly profits to nearly $1.5 billion or an 81% jump for the same period year-over-year.
“We are seeing the benefits of integration as we capture value from advantaged feedstock from the Permian and Western Canada for our North American refineries,” Exxon Chief Executive Darren Woods told the WSJ, adding that cheap Texas and Canada crude helped push third quarter profits up to $6.2 billion.
Heavy Canadian crude traded an average $28 per barrel below U.S. benchmark prices over the third quarter, and Permian crude traded at an average $14 per barrel discount.
As new pipelines are still in the works, oil in both regions are expected to remain relatively cheap for at least another year.
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