Skip to Content
Stock Strategist Industry Reports

Refiners Have Something Left in the Tank

Take advantage of near-term volatility to capitalize on long-term opportunity.

Mentioned: , , , , ,

Refiners have been the lone bright spot in the energy sector during the past year, handily outperforming every other subsector. While oil prices have deteriorated, refining margins have improved, thanks to strength in gasoline margins due to key refinery outages and strong demand. We maintain a favorable view of the refiners, but do not think the shares are screaming buys. However, buying opportunities could present themselves, with seasonally weaker demand and the return of previously offline refineries likely to weigh on margins and share prices. Beyond the seasonal lull, we expect gasoline demand growth to continue, thanks to sustained low prices, while a potentially above-average maintenance season could keep product inventories in check. Differentials may also come under pressure as U.S. production declines, but we expect any narrowing will be temporary, as transportation costs should create discounts when production growth resumes. Favorable market conditions, earnings growth from refining and nonrefining projects, and sustainable yields combine to make refiners buys on the dips.

Gasoline Margins Likely to Remain a Tailwind
The combination of strong demand and refinery outages has boosted gasoline margins about 50% this year, offsetting narrower differentials and lifting overall benchmark margins. Once thought to have peaked, gasoline demand is approaching 2007's record highs, as lower prices and a strengthening economy are driving an increase in vehicle miles traveled (also approaching 2007 peak levels) and contributing to record vehicle sales (led by trucks and SUVs). Meanwhile, refinery outages, particularly in California, have kept inventories balanced despite high utilization rates.

Allen Good does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.