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 Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

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!