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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Wyätt Gwyön who wrote (70258)9/29/2006 2:09:16 PM
From: carranza2  Read Replies (1) of 110194
 
I really do think, like you, that VLO is presently underpriced for the short term. At a 5-6 p/e and the best in the business ability to refine sour oil in the continental US, it is beautifully positioned.

It is very nicely priced right now, and I will be entering it soon--should have done so long ago--when it drops a bit more thanks to falling oil prices. But there are downsides in the long term.

The other refining majors, Exxon, et al, will be spending lots of cash to upgrade their refineries to accommodate sour oil. They will do so because they'll have to.

Sour oil presently sells at a discount to sweet because it is more difficult to refine. This discount will not last forever because it is inevitable that the price of sour will become the benchmark as it becomes the predominantly produced version. And if not the benchmark, certainly a lot more influential than it is now.

The present approximate 50/50 split between the two is unlikely to reverse or stay stable but will instead see sour become more and more of global oil production. Bye, bye discount, hello serious competition from some well-funded players.

I see VLO as having shrewdly recognized a terrific window of opportunity, but not one which will last forever. In the meantime, there is probably still money to be made in its shares, though perhaps not as much as in the past.
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