May 13, 2002; Refining Margin Languishes
results in the first quarter seemed to be worse than the trend of New York
Harbor margins might have indicated. Thus
our new projections of Ebitda for the downstream business for the next twelve
months is lower than previously. Yet
the market knows better and the first quarter results were pretty much
discounted by the time they became official.
For a time futures prices indicated a refining margin for the next 12 months slightly better than the 13-week average. That supported the common observation in first quarter earnings reports that recent conditions are better. Now that near term trend may be in doubt. It looks like futures quoted on May 9 dropped below the 30-week average (see chart).
any event refining margins are not as strong as crude oil price (for a chart
showing new highs in one-year and six-year futures for natural gas and oil, see Natural
Gas Royalty Trusts). All of the
stocks with refining exposure that we are recommending have more value in crude
oil and natural gas than in refining. We
think the refining end of the business should catch up in its contribution to
stock price. At the same time the
stocks have low or moderate debt and should readily withstand adverse