Refiners like Marathon Petroleum, HollyFrontier and Western Refining are reaping the "mid-continent advantage" as U.S. crude prices stay below world levels. A big boost to margins.
Rising oil production in the U.S. and Canada is keeping U.S. crude prices sharply below those in the world market. That has been a boon to independent oil refiners such as Marathon Petroleum (ticker: MPC), HollyFrontier (HFC) and Western Refining (WNR), which are benefiting from plentiful oil supplies in the middle of the country.
Good times for Midwestern refiners could last several years, lifting stocks like Marathon Petroleum, which was spun off from Marathon Oil (MRO) on July 1.
Marathon Petroleum shares, near 40, trade for less than seven times projected 2011 profit of $6 a share. "Marathon has top-tier refining assets and is benefiting disproportionately from the mid-continent advantage," says Evan Calio, an energy analyst at Morgan Stanley, who began coverage after the spinoff with an Outperform rating and a $54 price target. His earnings estimate is above consensus at about $7 a share for both 2011 and 2012.
Calio's reference to the mid-continent advantage refers to the boost that Midwestern and Southwestern refiners now get from purchasing oil at prices linked to West Texas Intermediate, the relatively low-cost U.S. benchmark crude, and selling gasoline, diesel fuel and other petroleum products at lofty prices based on more expensive world crude sources. The profit from refining a barrel of oil in the Midwest is now around $30 per barrel, triple the level of a year ago....MUCH MORE