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Energy Stocks

A Refined Outlook

By Elliott H. Gue, on May. 17, 2014

With the Gulf Coast emerging as the final destination for light crude oil from US shale plays, this glut should also pressure prices of medium and heavy crude oils in the region, further enhancing refiners’ profitability in this region.

Equally important, Gulf Coast refineries enjoy ready access to export markets, where gasoline and diesel trade at elevated prices that track supply and demand condition in the global oil market.   

US exports of refined products have surged by 52 percent since the end of 2009 and climbed by about 12 percent last year.

Midcontinent and Gulf Coast refineries continue to run flat out to take advantage of favorable economics; these exports increasingly have displaced higher-cost volumes in Europe, Central America, South America and Africa.

This bullish outlook differs dramatically from the plight of European refiners, which have suffered from steadily declining domestic demand (a long-term headwind exacerbated by the Continent’s weak economy) and intensifying competition from a new generation of Asian refineries and feedstock-advantaged US operators.  

Europe has shuttered about 7 percent of its refining capacity since 2009 and could close another 15 percent as early as this year. Eni (Milan: ENI, NYSE: E), Murphy Oil Corp (NYSE: MUR) and Total (Paris: FP, NYSE: TOT) continue to examine strategic alternatives for some of their downstream operations in Europe.

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