The surge in oil exploration and production from the middle of the United States is creating a powerful tailwind for refiners of West Texas Intermediate, the FT reports. (Registration required.) As output has ramped up, prices have fallen, boosting refining margins. And the trend shows signs of strengthening, powering shares of companies such as Delek US Holdings (Ticker: DK) even higher.
Analysts believe the regional refiners could get even cheaper oil in early 2012, further attracting investors to bid up their shares.Evan Calio, at Morgan Stanley, said that the WTI-Brent discount could expand to $50 a barrel by next spring.
“Less than five per cent of global refining capacity can process WTI-advantaged crude oils, capturing the differential and directly increasing gross margins,” he said.
Delek's Q1 report talked about the strengthening trend, which looks likely to drive a strong Q2. Brentwood-based Delek is scheduled to report its numbers on Aug. 4. Analysts are looking for a profit of 69 cents per diluted share, up from 23 cents a year ago.
Ahead of the opening bell, futures were higher as investors took stock of last week’s hefty declines. They shrugged off more disappointing data on the US housing market, which showed that homebuilder confidence fell to its lowest level since April 2009 this month. John Stoltzfus, strategist at Ticonderoga Securities, said investors were viewing last week’s selling as an overreaction in light of the fact that all but three of the 23 companies in the S&P 500 that have reported since the start of earnings season have beaten analyst forecasts.