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Refiner Tesoro Posts Gains despite Weak Oil Prices

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Tesoro leads refiners while Transocean and Consol Energy are among the worst performers

As the table below shows, Tesoro (TSO) and Phillips 66 (PSX) were among the top and bottom performers in the refining and marketing subsector last week. This subsector makes up 9.9% of the Energy Select Sector SPDR Fund (XLE). Consol Energy (CNX) and Transocean (RIG) were among the worst-performing stocks in their respective subsectors.

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Why refiner stocks are posting gains despite weak oil prices

Refiners such as Tesoro and Marathon Petroleum (MPC) have access to inexpensive crude. Since most US exports of oil are banned, a large portion of new oil from shale regions is landlocked. As a result, refiners within the US pay less for input than competitors abroad.

What’s more, refiners have invested vast amounts of money in building, updating, and expanding their logistics businesses in order to reduce the volatility involved. For instance, Marathon Petroleum’s partnership has agreed to buy MarkWest Energy Partners for a sum of $15.8 billion. The deal would combine the oil pipeline network of Marathon with MarkWest’s natural gas processing business, making the partnership the fourth-largest MLP (master limited partnership).

Partnerships that own pipelines and other infrastructure are characterized by long-term contracts, which earn the companies steady revenues. These partnerships have generally outperformed traditional oil drilling firms since the energy downturn began last year.

In the next part of this series, we’ll learn why the good times may not last for crude oil refiners.

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