Phillips 66: This Refining Stock Is Pumping Out Cash
Analysts and investors tend to look down at refining stocks due to their historically tight crack spreads. However, the oil production landscape has seen a massive economic shift. Margins are widening and the second-largest US independent oil refiner, Phillips 66 (PSX), is zooming along quite nicely. In fact, the world oil macroeconomics have caused some ludicrous market imbalances. It looks to keep American refiners like Phillips in earnings heaven for at least the next few years.
I first mentioned this situation in an article here. Some background:
For decades the mid-continental oil benchmark, West Texas Intermediate (or WTI) was priced at a premium above other benchmarks such as North Sea Brent. WTI is a better grade of crude with a lower sulfur content, a higher ratio of valuable derivatives like gasoline, and a chemistry that makes it generally easier to process compared to, say Venezuelan crude oil. Traditionally WTI would normally cost $2-$4 more per barrel than Brent with everything else being equal.
At the start of 2010 this began to change radically. Brent became more expensive and the last few months Brent has sold around $15-$25 higher than WTI. Even more, interior continental oil plays like Niobrara (Colorado) and the Bakken (North Dakota) have sold for as low as $40 under Brent.
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