25, 2002; Iraq, Growth or Seasonality May Widen Refining Margins
of the dominant refiner/marketers in the Midwest, Marathon's profit rises and
falls in part with the Chicago Crack Spread.
Our source is MRO for the industry numbers for the difference between the
cost of three barrels of crude oil to make two barrels of gasoline and one
barrel of heating oil (3-2-1).
for the next twelve months calculated from New York Mercantile Exchange futures
have been stable for the past five months at a level higher than the current
Chicago crack spread. That is part
of the reason to be interested now in a stock like MRO that has about a third of
its value in refining/marketing.
refining margins below normal, this may also be a good time to attack Iraq as
there is some cushion in the system. Yet
anything can happen that might widen margins.
A little bit of widening makes a big difference to refiners before
consumers see much impact.
base case for the refining business is helped by the consolidation trend that
puts capacity into stronger hands. For
example, inventory correction may be occurring more rapidly than in the past
according to Bill Greehey, Chairman of Valero energy.
increasingly strict environmental rules should be helping refiners more rather
than penalizing them as in the past. Those
who make the case for a stiff gasoline tax to encourage conservation indirectly
make the case that consumers could support much higher refining margins.
We don't see high taxes on energy coming soon because the regional
political issues are too strong to solve easily.
each of the past two summers has been good for Marathon.
Consumers continue to drive more even though they may be flying less.