Friday, April 16, 2010

"Marathon refining margins hit, but do bonds provide boost?" (MRO)

Things might be turning for refining, more below.
From Platt's 'The Barrel':

Marathon Oil, welcome to negative refining margins.

Last month, during a press event and tour of its recently completed Garyville refinery expansion, an executive boasted to me that the company was the only US refiner to stay in the black last year at all of its refineries. But earlier this month, the company disclosed those margins sagged during the first quarter.

Marathon said April 8, in an interim update on its pending quarterly results, that it estimated its Q1 refining and wholesale marketing gross margin will be about minus 6 cents/gal, compared to a positive 7.92 cents/gal in the corresponding quarter last year. This was largely due to higher crude prices as well as the costs of maintenance during the quarter, the company said.

Some of that maintenance was at Garyville, which had a turnaround of the original equipment there as it started up the new units. By the time of the March 25 press tour, the entire Garyville refinery was running at full nominal capacity of 436,000 b/d and it may exceed that level, depending on how it performs, according to Gary Heminger, the company's executive vice president.

The 180,000 b/d expansion at Garyville cost $3.9 billion. One little-discussed fact about that is the project was backed by $1 billion in general obligation bonds issued by Saint John the Baptish Parish, where it is located. The GO bonds have a 5.125% fixed rate and a maturity date of June 1, 2037. As of year-end 2009, all the funds from the bonds had been received by Marathon....MORE

From the WSJ:

Marathon Oil Started At Outperform By Credit Suisse - >MRO

From Schaeffer's Research (Wednesday):

Option Activity Alert: Bullish Bets Build on Marathon Oil Corporation

Option activity ramped up on Marathon Oil Corporation (MRO) yesterday, with call volume climbing to more than eight times the expected level. About 26,000 calls changed hands on the commodity concern, easily outpacing MRO's predicted daily call volume of about 3,100 contracts. Puts were significantly less popular than their call counterparts, but nevertheless, MRO's daily put volume of 3,738 contracts nearly doubled the equity's expected activity.

MRO SOIRDuring the course of Tuesday's trading, speculators on the International Securities Exchange (ISE) bought to open 3,983 calls on MRO, compared to just 10 puts. The equity's single-day ISE call/put volume ratio of 398.3 reveals a dramatic bias toward bullishly oriented options.

Tuesday's most active call was the April 33 strike, where 6,608 contracts changed hands. Shortly after the opening bell, a sizable block of 1,953 contracts traded at the ask price of $0.10, suggesting they were purchased. Implied volatility on this soon-to-expire option spiked 41.7% by the close, pointing to rising demand for this narrowly out-of-the-money call.

MRO open interestOpen interest at MRO's April 33 call climbed by just 220 contracts overnight, though, suggesting that the day's volume was a mix of both newly opened calls and liquidations of existing positions. Since these options were out of the money throughout Tuesday's session, it's possible that traders who wrote calls at this strike were closing out their bets ahead of Friday's expiration.

However, the stock's soon-to-be front-month May 33 call saw a significant increase in open interest as a result of Tuesday's trading. This option traded volume of 3,791 contracts yesterday, sending implied volatility up 2.1%, and open interest rose by 2,854 contracts as a result. With 6,569 contracts in residence, the May 33 strike is the home of peak call open interest for the series.

Meanwhile, in the April series, MRO is staring up at a massive accumulation of 12,386 contracts at the 34 call. With expiration approaching at the close of Friday's trading, this heavy build-up of out-of-the-money calls could act as a short-term layer of options-related resistance....MORE