In a recent report, analysts at Deutsche Bank updated their outlook for U.S. oil refiners. Analysts are generally bullish on the sector overall, but they prefer names with Gulf Coast exposure.
Different Cause, Same Effect
Deutsche Bank was bullish on refiners all the way back in October of 2014. At the time, they argued that supply growth and expanded pipeline capacity would build up crude inventories and lead to increased competition in the U.S. Gulf. Analysts now see the collapse in oil prices and the inventory-driven differentials as the main driving forces for the refining industry in 2015.
Inventories Continue Rising
The report notes that Cushing inventories are up by more than a third since the end of 2014. Analysts point out that supply-demand balance could be shaky over the next couple of months due to refining turnaround and seasonally weak demand.
While the market seems concerned over climbing inventories, refiners are in an excellent position to capitalize on cheap crude. In fact, there is already evidence that refining margins have been on the rise since late December/early January. This change has lead Deutsche Bank to boost Q1 earnings projections for several refiners.
Who Benefits?
Deutsche Bank prefers names that have Gulf Coast-flexibility over those that don’t. Deutsche Bank currently has Buy ratings on the stocks of Marathon Petroleum Corp MPC 0.08%, Phillips 66 PSX 0.12%, Tesoro Corp TSO 0.06%, Chevron Corp CVX 0.23% and Valero Energy Corp VLO 0.9%.
It has Hold ratings on the stocks of Delek US Holdings Inc DK 2.19%, PBF Energy Inc PBF 0.36%, HollyFrontier Corp HFC 0.15% and Exxon Mobil Corp XOM 0.54%.
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