Stocks of refining MLPs Alon USA Partners (ALDW), CVR Refining (CVRR), and Calumet Specialty Products Partners (CLMT) have surged 17%, 22%, and 31%, respectively, since the start of November 2016. The biggest factor contributing to the surge is Trump’s victory. Investors are hopeful that the EPA’s (Environmental Protection Agency’s) Renewable Fuel Standards (or RFS) that are impacting many small refineries negatively will be eased under Trump’s presidency.
The above graph shows the surge in refining MLP stocks in November. Weak crack spreads have negatively impacted the performance of refining MLPs. High RIN (renewable identification numbers) costs under RFS have added to the woes of refining companies.
Refining MLPs basically take crude oil as input and convert or “crack” it into refined products such as gasoline and distillates. Distillates include fuel oils and diesel. As such, refineries benefit if the input (crude oil) cost is less and the refined products’ prices are comparatively high. So, refining MLPs benefitted when the crude oil prices were very low in 2015. With a recovery in oil prices in 2016, the refining MLPs no longer enjoy this huge spread.
Though Trump’s presidency is expected to be generally positive for refining companies, it’s equally important to analyze and compare the various refiners before making an investment decision.
This series analyzes the key metrics of three refining MLPs: ALDW, CLMT, and CVRR. It includes an analysis of their operating metrics, distributable cash flow growth, leverage, distribution trends, capital expenditures, and growth prospects.
Let’s begin by analyzing what analysts are recommending for the three refining MLPs.