Chris Forte’s “Thoughts To Start the Day” – Oil and Refining

Posted on June 1, 2022 by Scott Shuda

Do we have enough oil in the world? Yep. So what’s the problem?  There’s a bottleneck at the refinery level. 

 

A barrel of crude has to be refined into gasoline, diesel, and jet fuel.  That takes massive refinery plants. 

Heard of “Crack Spread”?  It’s the difference between gas and diesel prices and cost of crude oil. In a nutshell it’s the profit margin, the markup a refiner makes. In goes a $100 barrel of oil and out goes $150 worth of gas and diesel.  

The crack spread is in record territory.  Refiners are running flat out and minting money. Why? The profits are so good.  In June US refiners will be running at 95% capacity. 

But why are we still refining less fuels than previous years? Why the bottleneck? Because of underinvestment in both new and older refineries and even closure of some.

Covid didn’t help either. It killed fuel demand so a few refiners shut down and struggle to reopen.

So why not build more refineries?  They cost a bloody fortune. Shareholders say ‘no thanks’, I’ll take the present profits and dividends since who knows what the future holds. 

Scott Shuda has started a research report to shine light on refiners. See “Refiners” on the Feed. 

Also check out tiny refiner Vertex Energy (VTNR) for an example of refining alpha. It is up 187% YTD.  There’s also CRAK – Oil Refiners ETF.

Dominic Chu: Yesterday 8 companies in the S&P 500 hit record highs.  Seven were in one sector. Answer below.

Droning on: Attention Walmart shoppers, there’s a drone coming to you soon. WMT announced plans to drone-drop purchases to 4M households in 6 states by the end of the year.  This is a much more ambitious plan than Amazon’s. 

According to Seeking Alpha, “ARK Invest estimates that fully autonomous drones could deliver consumer packages by air profitably in as little as 30 minutes for less than a dollar. The firm’s research also suggests that drones could transform logistics and address nearly half of all global e-commerce, generating ~$100B in revenue per year globally within the next decade.”  Talk about a runway. . . 

See the “Thoughts” comments section for a list of drone companies. 

Duck and cover: If you want protection from drones don’t forget RADA Industries which makes radars for worldwide militaries and should have a good 2H of 2022. 

Good INFU:  Since bottoming in late April healthcare play INFU Systems (INFU) has quietly risen 42%.   

Respected technician Larry Williams says take note of the big rally on Friday – 96% of the S&P 500 stocks were up.  He says that’s a rare display of buying power. Only 6 times since 2008 has that happened and each time good things happened for the market.  He thinks this rally can bounce well into August.

.No saving grace: Liz Ann Sonders says, “Goodbye to the savings boom: personal savings rate has fallen to 4.4%, which is back to financial crisis-era levels (lowest since September 2008).”

Let’s make up: Cosmetic companies are looking good. Both ELF and ULTA reported pretty results and both see sales momentum.  Apparently more people are socializing and powdering their noses, especially since they can’t hide behind masks anymore.  

Answer:  The 7 companies hitting new highs were oil/energy

Feed me: Breakout Investor Ashleigh Day says, “Executives at INmune Bio (INMB) have stepped up and bought shares following a crash in the shares resulting from an FDA letter requesting information regarding manufacturing.”  INMB closed at  $6.90.

Wait, there’s more from Ashleigh. “New Company – ROYALE Energy Funds.” There’s a Breakout Investor call with management at 3pm CST today. ROYL is a microcap  oil and gas company with properties primarily in California and Texas.

“Down today. I think the correlation, perhaps the causation, is that I’m no longer on vacation. So let’s start a go fund me for me to go back on vacation. Benefits everyone!”  – AARON WARWICK, Breakout Investor 

Good luck to all – Chris

 

 

 

 

 

 

 

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