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How Are Downstream Companies Reacting to Market Volatility?

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Moving averages

As of January 27, 2016, the US-based (SPY) large capped refiner in the table below traded 17% below the 100-day moving average. However, large-capped upstreams traded 22% below their respective 100-day moving averages.

The table above shows the moving averages and Wall Street estimates for large-cap refiners. Delek US Holdings (DK) and Alon USA Energy (ALJ) were trading 38% and 28%, respectively, below their 100-day moving averages that are the highest among the large-capped refiners. Another refiner, Northern Tier Energy LP (NTI), managed to trade 2.3% below the 100-day moving average. That’s in the single digits compared to the double-digit difference of other refiners.

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Northern Tier Energy’s 52-week high lies around $28.9. The stock is currently trading 14% below the 52-week highs. Amid volatile crude oil, downstream operators are the only performers in the oil and gas sphere. But after the removal of the ban on US crude oil exports, most refiners gave up their gains throughout the year. For example, NTI fell 19% from its 52-week highs in November due the price range of $23 to $24 in December 2015.

Wall Street’s consensus estimates

Wall Street’s consensus estimates suggest that the ten major US (SPY) large-cap refiners could return 42.7% on average over the next 12 months. The front line refineries Phillips 66 (PSX), Valero Energy, Marathon Petroleum (MPC), and Tesoro (TSO) could rise by 24%, 23%, 64.9%, and 48.4%, respectively, from their current levels.

By comparison, Delek US Holdings, Alon USA Energy, and CVR Refining could rise by 99.6%, 45%, and 31.4%, respectively. In terms of current and forward price-to-earnings ratios, Delek US Holdings, CVR Refining, and HollyFrontier are relatively cheaper than the other downstream companies.

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