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Stock Strategist

HollyFrontier's Positioned to Succeed

We like the refiner's midcycle earnings potential.

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 HollyFrontier (HFC) is a relatively small player, with 457,000 barrels per day of crude oil throughput capacity. Although it’s smaller than its Gulf Coast peers, its refineries are competitively well positioned.

HollyFrontier is the largest independent refiner that has all of its facilities located in the midcontinent, Rockies, or Southwest regions. As a result, it has benefited from the difference in price between West Texas Intermediate and other high-quality waterborne crude such as Brent. With access to abundant supplies of WTI, HollyFrontier’s refineries have enjoyed the additional margin that this spread offered. While the spread is likely to remain narrow in the near term, we expect it to widen over the next five years. Ultimately, we think the transportation costs to move light crude from the midcontinent to the Gulf Coast result in a long-term WTI differential to Brent of $5 per barrel, well above historical levels (before 2010).

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