Warren Buffett And Carl Ichan Are Investing In Fuel Refiners $VLO $XOM $CVX $MPC $MUR $HES $MRO $COP $OXY
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Just last year, oil companies were downsizing their refinement facilities. Today, big names like Warren Buffett and Carl Ichan are investing in fuel refiners, attracted by the promise of larger refinery spreads based on lower oil prices.
Shifting balances of power between refiners and oil producers make it clear neither set of companies always dominates the other. Investors should seek the best values from both sets of companies.
There is an important distinction to be made here. Independent oil refineries such as Valero Energy (VLO) are cashing in on oil production. Big oil companies like Exxon Mobil (XOM) and Chevron (CVX), however, are struggling as they face concerns about defraying costs incurred by the smaller than hoped for profits from crude and natural gas. While the U.S. is leading the market in fuel production, it is the small refineries that are taking the lead, not the crude producers. Valero Energy outperformed Exxon 10 times over. Valero not only beat Exxon with its gains averaging 43%, but topped the charts by besting Standard & Poor’s 500 Index in energy.
U.S. based companies are expected to reap the profits of having the most innovative and efficient refining technology for processing cheap crude oil. Implementing the new technology of cracking shale rock to produce gas, production costs of oil have been cut by the shale wells in the Midwest reaching all the way down to the U.S.-Mexican border, especially in the Gulf region. This new method of harvesting U.S. natural resources has allowed oil production companies to purchase crude materials at a much lower price than their global competitors, giving U.S. companies a leg up in exporting oil. These positive developments for U.S. oil production have now benefited this U.S. industry for three years, causing profits that have been compared to the earnings in the mid-2000’s. Because the demand at home for oil is waning, the U.S. exported more fuels in 2011 than it imported, a development the oil market has not seen since 1949, and the amount of oil exportation is predicted to continue increasing. Analysts predict a surge in profits for U.S. refiners as worldwide demand for a limited commodity product increases.
There are geographical differences, too. Broad U.S. success starkly contrasts with companies in Europe and even Euro-exposed companies on the U.S.’s eastern seaboard who are scrambling to make ends meet as they deal with the financial crisis.
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