The price of crude oil in the U.S. has dropped nearly 9% during the past month of trading, and Credit Suisse believes it’s time to take another look at the refiners, including Tesoro (TSO) and Calumet Specialty Products (CLMT).
Bloomberg News Analyst Edward Westlake and team explain what they see happening:
The pullback in crude prices, notably WTI will reduce losses on secondary products (asphalt, LPG). Backwardation has turned into a slight contango, another 4Q positive. The smaller refineries are more sensitive to crude price gyrations than large complex Gulf refiners – something to keep an eye on.
Narrower spreads between Cushing and the Gulf have made the Gulf refiners more competitive on the main product pipelines inland.
Westlake particularly likes Tesoro:
TSO looks like a clear winner from here. The stock is the cheapest when logistics dropdown value is taken into consideration. Their Northern Mid-Con and Pacific North-West are among the best positioned in US refining – with a decade of free cashflow ahead. West Coast results demonstrate TSO's above average asset quality which Carson synergies will cement further. We raise our TP from $60 to $62.
Westlake also finds Western Refining (WNR) and Delek US (DK) interesting, while upgrading Calumet Specialty Products to Neutral from Underperform as “the themes which drove expected underperformance have now become more visible.”
Shares of Tesoro have gained 0.8% to $48.66 today at 11:57 a.m., while Western Refining has dropped 0.9% to $31.61, Delek has fallen 1.7% to $23.71 and Calumet has gained 2.2% to $26.08.
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