Buy the refiners?
2/23 17:34 Refiners, Their Earnings Already on the Rise, Would Benefit if Oil Drops
By David Wells
Crude Oil Price Drop Would Boost Refiners' Profits (Correct)
(Corrects lead to say ``increase' production.)
New York, Feb. 23 (Bloomberg) -- U.S. refiners could see
first-quarter earnings, already surging because of higher gasoline
and heating oil prices, climb even more if oil-producing nations
increase production.
Independent refiners Sunoco Inc., Tosco Corp., and Ultramar
Diamond Shamrock Corp. are on track to at least double profits
from a year ago, according to estimates by First Call/Thomson
Financial. Valero Energy Inc. expects to go from a loss of 5 cents
a share to a profit of 30 cents.
Refiners' profit margins would grow even more if the price of
oil, the raw material for gasoline and heating oil, drops. Arab
oil ministers meeting in Riyahd, Saudi Arabia, today repeated a
pledge to pump more if rising prices threaten to stunt world
economic growth.
``The indications are good' for refiners' profits, said Asit
Sen, an analyst at ABN Amro Inc. ``The wild card is OPEC.'
Investors have taken note of improving prospects for
refiners. Valero has risen 25 percent this year, and Sunoco,
Ultramar and Tosco have risen an average of 5.5 percent this year
compared to a 6.5 percent drop in the Standard & Poor's 500 index
of industrial stocks.
Refining's Moment
Oil prices have climbed 15 percent on the New York Mercantile
Exchange to $29.39 in 2000, more than double year-earlier levels.
Big, integrated companies such as Exxon Mobil Corp. and the
Royal Dutch/Shell Group make much of their money from the sale of
oil. While their refining operations would profit, their oil
exploration arms would make less if the Organization of Petroleum
Exporting Countries cuts back its output. OPEC ministers plan to
meet on March 31.
Pure refiners like Sunoco and Valero reap nothing but
benefits when fuel prices climb and oil prices drop or remain
constant. Gasoline on the Nymex has risen 24 percent this year,
and heating oil has climbed 12 percent.
U.S. refining margins, the difference between the cost of a
barrel of oil and the products that can be made from it, have
averaged $3.91 so far this quarter, Sen said. They averaged $2.44
a barrel in the first quarter of 1999.
The average retail price of heating oil in the U.S. during
the week of Jan. 31 was about $1.66 per gallon, up 92 percent from
a year earlier, according to the U.S. Department of Energy. Crude
oil prices were up 123 percent.
Demand for home heating oil and diesel fuel averaged 3.75
million barrels a day last month, up 3.1 percent from a year
earlier, according to the American Petroleum Institute.
Cold Facts
A cold snap in the Northeast drew down inventories of heating
oil, diesel fuel and chemically similar products known as
distillates by an estimated 17 million barrels in the three weeks
ending Feb. 4, the largest such decline in five years.
Distillate inventories were 108.5 million barrels at the end
of January, down 27 percent from a year earlier, according to the
API.
Sunoco is expected to earn 33 cents a share this quarter,
based on the average estimate of analysts polled by First Call.
Estimates range from 15 cents a share to 50 cents a share.
The consensus for Sunoco is up from 30 cents a share 30 days
ago. A year earlier the Philadelphia-based company earned 13
cents. Sunoco has 5 refineries, the largest of them on the East
Coast. Its plants process about 730,000 barrels of crude a day.
Valero is expected to earn 30 cents. Estimates range from 6
cents to 60 cents. The consensus is up from 19 cents a share 30
days ago. Valero's five refineries in Texas, Louisiana and New
Jersey can process about 785,000 barrels a day.
Tosco is expected to earn 37 cents. Estimates range from 27
cents to 50 cents. The consensus is down from 40 cents 30 days
ago, mainly because demand for heating oil is weaker on the West
Coast where four of Tosco's seven refineries are located. A year
earlier Tosco earned 18 cents. The Stamford, Connecticut-based
processes as much as 950,000 barrels of oil a day.
Ultramar is expected to earn 36 cents. Estimates range from
25 cents to 45 cents. The consensus is up from 31 cents 30 days
ago. A year earlier San Antonio-based Ultramar earned 18 cents.
The company's seven refineries located in Texas, California,
Oklahoma, Michigan, Colorado and Canada can process about 662,000
barrels a day.
Gasoline profit margins are expected to widen this summer as
drivers, flush with cash from a booming economy, take to the roads
for vacations.
``Margins will keep improving throughout the year,' said
Fadel Gheit, an analyst at ABN Amro Inc. ``This is going to be a
record driving season in the U.S.' |
