Refiner Stocks Still a Strong Bet Despite Falling Oil Prices
West Texas Intermediate Crude (WTIC) has dropped to below $92 per barrel as traders bet on diplomacy between Washington and Tehran easing tensions in the Strait of Hormuz. This price drop is welcome relief from last week's high of $106 a barrel, which had climbed almost 30% between late August and mid-September.
The decrease in oil prices has been beneficial for most of the market, as it will take pressure off inflation, loosen the Fed's bind, and ease a headwind on both the AI trade and equities. However, this raises a question for energy investors: is it time to sell their oil stocks now that they have experienced significant gains?
Legendary investor Louis Navellier disagrees, saying not to give up on energy stocks yet, especially refiners. He points out that the refinery stocks are still in a strong position due to acute diesel shortages worldwide. Refiners make money from the crack spread, which is the margin between what they pay for crude oil and what they collect from selling refined products.
The refining capacity across the Middle East and Asia has dropped by more than 7 million barrels a day, with another 1.4 million barrels a day knocked out in Russia due to Ukrainian drone strikes. As a result, U.S. diesel prices have topped $6 a gallon for the first time on record, and the benchmark diesel crack has blown past $100 a barrel.