Valero Energy Corporation (VLO), Western Refining, Inc. (WNR): Are Refiners Making a Comeback?

Page 1 of 2

Valero Energy Corporation (NYSE:VLO)During the past month, petroleum-refining companies have rallied:  Shares of Valero Energy Corporation (NYSE:VLO) rose by nearly 3.8%. Based on the latest development in the oil market including the sharp rise in the price for oil, will shares of leading refining companies keep rising? Is the refinery industry heating up?

Refinery inputs are rising

According the U.S Energy Information Administration, in the past several months refinery inputs have been picking up. As of last week, refinery inputs reached approximately 16.1 million barrels per day, which is nearly 2.7% above last year’s levels. The rise in the refinery inputs are likely to boost the revenue of leading oil refinery companies such as Valero Energy Corporation (NYSE:VLO) and Western Refining, Inc. (NYSE:WNR).

In previous months, the refinery outages may have adversely affected the revenue of major refineries, but the current expectations are that refinery inputs will keep increasing.

The chart below presents the developments in U.S refinery inputs and the price for oil during 2012 and 2013.

The rise in refinery inputs also coincided with the increase in the price for oil, which is currently well above $100 per barrel. These two developments are likely to positively affect the revenue of major refineries.

Revenue and profit margins

Some leading refineries in the U.S haven’t done well in the past quarter: In the second quarter, Valero Energy Corporation (NYSE:VLO)’s revenue slid by 1.8%. One of the reasons for the decline in revenue was the drop in volume of throughput:  The total volume of throughput fell by nearly 2%, which accounts for part of the drop in refinery revenue.

Valero Energy Corporation (NYSE:VLO)’s operating profitability shrank in the second quarter from 4% in 2012 to 2% in 2013. According to the company, the decline in profitability was partly due to a drop in throughput margin that reached $9.36 per barrel in the second quarter compared to $10.63 – a 12.9% decline (year-over-year).

Valero Energy Corporation (NYSE:VLO) is still seeking growth and projects its capital expenditure in 2013 will reach $2.8 billion – so far the company’s capital expenditure was nearly $1.4 billion in the first half of the year. In 2014, this provision is expected to reach between $2.5 billion and $3 billion. These steps are likely to enable the company to reach growth in revenue in the coming years.

Moreover, the drop in profit margins was also partly due to the contraction in the price difference between Brent and West Texas Intermediate (WTI). The current price difference is around $2, which is likely to continue adversely affecting these companies’ profit margins in the coming quarters. (Here is an article that explains the potential adverse effect of narrower differentials on refining companies.)

Western Refining, Inc. (NYSE:WNR)’s revenue also declined by 1.6%. Moreover, the company’s operating profit also fell by more than 32% (year-over-year). The drop in operating profit was stemmed by the 3.9% decrease in total volume sold and the 25.7% tumble in the refinery’s gross margin.

In terms of investment, the company’s capital expenditures were $101.8 million in the first half of 2013 compared to only $59 million in the first half of 2012. The sharp rise in capital expenditures is a positive sign for potential growth in operations in the future.

Marathon Petroleum Corp (NYSE:MPC), unlike Valero Energy Corporation (NYSE:VLO) or Western Refining, Inc. (NYSE:WNR), augmented its revenue in the second quarter of 2013:  Its net sales rose by nearly 27%. Despite the rise in revenue, its profit margins shrank from 6% to 4% in the second quarter. The spike in revenue was due to a spike in total refinery throughputs of approximately 39%. The sharp rise in throughputs was mostly attributed to the Galveston Bay refinery, which was acquired on Feb. 1. If the company continues to increase its operations by purchasing more refineries, this is likely to keep its revenue growing.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!