How Refining Stocks Have Performed in 2Q17

Refining stocks’ performance

Since April 3, 2017, Marathon Petroleum (MPC) has risen 4%, the most among peers. Tesoro (TSO), Valero Energy (VLO), and Phillips 66 (PSX) rose 2%, 1%, and 1%, respectively. Similarly, the SPDR S&P 500 ETF (SPY), the broader market indicator, has risen 2% since April. The ETF has ~6% exposure to energy sector stocks MPC, TSO, VLO, and PSX. Let’s look at what led to the rise in refining stocks.

How Refining Stocks Have Performed in 2Q17

Refining stocks surge in 2Q17

Various factors impact refining stocks, including geographical cracks, spreads, and refined product inventory levels. Refining margin indicators of leading refining companies have risen sequentially in the second quarter so far, pointing towards a refining margin improvement from 1Q17. Likewise, Tesoro’s consolidated refining index has rose from $12.40 per barrel in 1Q17 to $14.50 per barrel in 2Q17. MPC’s and VLO’s refining margin indicators have also strengthened.

Between the end of April and early May, refining stocks posted their 1Q17 earnings. All four aforementioned refining stocks posted decent numbers in 1Q17. MPC’s, TSO’s, VLO’s, and PSX’s 1Q17 earnings surpassed their estimates.

However, the API (American Petroleum Institute) reported a rise in gasoline inventory in the week ended May 5, 2017. In the same week, distillate inventories fell.

Therefore, in 2Q17, refining stocks’ rise was likely due to improved refining margin indicators coupled with better 1Q17 earning releases. This rise was partially offset by rising gasoline inventory levels in the industry.

Series outline

In this series, we’ll analyze refining stocks’ dividend yields, forward valuation, institutional holdings, short interest shifts, implied volatility, analyst ratings, and correlation with WTI (West Texas Intermediate). Continue to the next part of this series to learn how refining stocks’ 50-day and 200-day moving averages have changed in 2Q17.