Refiner Stocks Rise as Harvey Disrupts Fuel Production
29 August 2017 - 8:06AM
Dow Jones News
By Alison Sider
Shares of companies that churn crude into fuel rallied Monday,
as Tropical Storm Harvey inundated the Texas Gulf Coast with
punishing rains.
Refining capacity totaling more than 2 million barrels a day has
been taken offline, causing prices of gasoline and diesel fuel to
jump on concerns that supplies will be tight with fewer refineries
able to churn out fuel. Meanwhile, that reduced demand weighed on
oil prices.
As a result, companies with plants that are still up and running
-- especially those with plants nowhere near the storm -- stand to
benefit from surging refining margins.
Shares of PBF Energy Inc., which has refineries in Delaware, New
Jersey, Ohio, California and Louisiana, climbed 8.3% to $22.71 on
Monday. HollyFrontier Corp., largely concentrated in the Midwest,
gained 6.4% to $31.47. Andeavor, with refineries in California,
Utah, and Washington, added 3.2%.
Even companies that have been affected by Harvey rose, including
Valero Energy Corp., Marathon Petroleum Corp. and Phillips 66.
Refiners tend to benefit from disruptions that lift fuel
margins. In prior Gulf Coast hurricanes, refining shares have
outperformed major indexes by as much as 19% in the days following
landfall, according to Wells Fargo analyst Roger Read.
"Overall, each refining company will tend to benefit (at least
from a margins, earnings, and stock price perspective) from periods
of disruption like this, even if they have assets affected,"
Raymond James analysts wrote in research note Monday.
A factor adding to investors' optimism is that there have been
few reports so far that plants in the storm's path have been
damaged. Several refiners in Texas have stopped making fuel or
slowed down, but many reported that the move was a precautionary
measure, or a necessary response to logistical issues with
pipelines and ports.
Valero has said its Corpus Christi-area refineries are
relatively unscathed, and that it's looking at ways to restart
them. Citgo Petroleum Corp. said Monday that it is "assessing the
refinery" but didn't provide a restart date.
"At this stage, most of the refining outages are reported as
preventive, with only a few comments on minor flooding. However,
the slow moving nature of the storm will likely lead to these
shutdowns continuing in coming days," analysts at Goldman Sachs
wrote in a research note Monday. The analysts said another 850,000
barrels a day of refining capacity could be hobbled if the storm
moves further east.
And the worst may not be over for plants in Houston, where the
storm is expected to make landfall again on Wednesday, and flooding
is expected to worsen. Flooding can ruin the electric pumps that
send crude through a refinery's complex network of piping, and an
influx of brackish water can lead to corrosion. Repairs for serious
issues can take weeks or even months.
And the storm could move further east where it will encounter
another large concentration of big refineries in places like Port
Arthur, Texas, where the largest U.S. refinery is located.
"The extent of the devastation will not be realized for several
more days," said Michael Tran, director of energy strategy at RBC
Capital Markets.
That could mean that some plants are facing a significant amount
of downtime.
"While it remains unclear for how long refining capacity will
remain shuttered, we believe that some refineries, especially in
the Houston area could take more than a month to return," analysts
at ESAI Energy Inc. said.
--Dan Molinski contributed to this article.
Write to Alison Sider at alison.sider@wsj.com
(END) Dow Jones Newswires
August 28, 2017 17:51 ET (21:51 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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