After being bullish on refiners for the past 18 months, we have turned cautious following a hurricane-related runup in the shares. While storms knocked refineries off line long enough to put a dent in swollen product inventories, boosting margins in the process, we do not see the improvements as sustainable.
On the basis of our analysis of past hurricane activity, these more favorable conditions will prove ephemeral. With stock prices higher, we see much less opportunity in the space and would wait for a pullback. We see warning signs emerging that current strong domestic product demand growth might soon stagnate, increasing the importance of exports for U.S. refiners. And while U.S. refining holds some competitive advantages that will keep exports growing, some companies are better positioned than others.
Allen Good, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.