Leading refineries companies such as Valero Energy Corporation (NYSE:VLO) and Marathon Petroleum Corp (NYSE:MPC) have started off the year on a positive note as their stocks sharply increased: shares of Valero Energy Corporation (NYSE:VLO) sharply increased by 32% (year-to-date); shares of Marathon Petroleum Corp (NYSE:MPC), by 43%. The recent rally in the price of oil could partly explain these companies’ stocks spike. Both companies offer similar dividend yield: Valero Energy Corporation (NYSE:VLO) recently raised its dividend to $0.2 per share, which comes to an annual yield of 1.77%; Marathon Petroleum Corp (NYSE:MPC) pays $0.35 per share, which is a yearly yield of 1.55%. Both companies raised their payout in 2012 compared to 2011 but the payouts are still low: Valero Energy Corporation (NYSE:VLO) raised its payout from 8% in 2011 to 17% in 2012; Marathon Petroleum Corp (NYSE:MPC) raised it from 7% to 12%. The stable growth in revenues for these companies is also pulling up these companies’ stock: During 2012, Valero Energy Corporation (NYSE:VLO)’s revenues grew by 10.5%; Marathon Petroleum’s revenues, by 4.7%. The recent upgrade Marathon Petroleum Corp (NYSE:MPC) received from Moody’s following the company’s acquisition of Galveston Bay refinery may have also contributed to the rally of the company’s stock in recent days.
From the demand side, the U.S economy is showing some signs of recovery as the Philly Fed index bounced back during March, the housing market continues to rally and employment situation slowly improves. Conversely, the situation in Europe isn’t progressing and latest debacle around Cyprus is dragging down the Euro currency. The uncertainty around the future progress of Euro Area may have contributed to the decline in the oil prices in Europe.
The IEA estimates the global oil demand will increase in 2013 by a lower rate than it had previously estimated. This is another reason why global oil prices are likely to come down.
Based on the above, I think the price of oil in the U.S might continue to rise in the coming weeks. In the rest of the world, the price of oil might continue to slowly decline as leading economies are showing little signs of growth and the oil supply moderately rises. My guess is that the price of oil in the U.S will pass the $100 mark in the near future.
Disclosure: The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.
The article Will Oil Continue to Rise? originally appeared on Fool.com and is written by Lior Cohen.
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