| July 3
July 3 U.S. refiners in the Midwest are losing
an advantage they have enjoyed for nearly three years as the gap
between the world's two most-traded crude oil grades falls to
its lowest in about two-and-half years.
The premium of North Sea Brent to U.S. benchmark West Texas
Intermediate (WTI) dwindled to $3.09 on Wednesday,
its narrowest since December 2010.
That premium was at about $20 for most of 2012, boosting
margins at inland refiners such as CVR Energy Inc,
Marathon Petroleum Corp, Western Refining Inc
and HollyFrontier Corp.
The companies' margins burgeoned as they purchased low-cost
WTI and sold refined products, such as gasoline and diesel, at
prices linked to the more expensive European Benchmark Brent.
"The Brent-WTI spread will remain subdued in the second half
of 2013, which could certainly provide a headwind for a group
that has largely relied on it for margin and earnings momentum,"
said Raymond James analyst Stacey Hudson.
Shrinking crude differentials, among other factors, would
affect near-term profitability and influence capital investment
decisions, HollyFrontier Chief Executive Mike Jennings said on a
conference call with analysts in May.
Since May 1, HollyFrontier's shares have fallen 16 percent,
while Western Refining has dropped 13 percent. CVR is down 8
percent and Marathon Petroleum has fallen 6 percent in the past
"I'm telling people now to stay away from these stocks
(inland U.S. refiners), until we know in the next 3-4 weeks
whether this trend is temporary or it's going to take a long
long time before it reverses," said Oppenheimer & Co analyst
Bradley Olsen, analyst at investment bank Tudor Pickering &
Co, said he believed the rally in WTI prices would be relatively
short-lived, with prices unlikely to remain strong through the
rest of the year.
U.S. crude futures have risen 7 percent to $99.60 per
barrel so far this year, with improved pipeline and rail
capacity easing the glut at America's oil-storage hub at
Brent crude futures, meanwhile, have fallen 8
percent to $104 a barrel in 2013 as North Sea oilfields return
to production and Saudi Arabia increases oil output.
Demand for Brent-quality crude in the United States has
declined as imports have been displaced by a rise in U.S. light
sweet crude production, the U.S. Energy
The narrowing differential between WTI and Brent also means
that Light Louisiana Sweet (LLS), the benchmark light crude on
the Gulf Coast, will move closer in price to WTI.
"We expect to see LLS, which had been linked to Brent, move
closer to WTI as less and less foreign light crude is imported
into Gulf Coast refineries," said Bill Day, spokesman for Valero
Energy Corp, which stopped importing foreign light sweet
crude at the end of last year.
Valero's stock has fallen about 5 percent since May 1.