The Market Vectors Oil Refiners ETF (NYSEArca: CRAK), the first dedicated exchange traded fund play on refiners equities, is languishing this relative to other equity-based energy ETFs, but that is not surprising.
The oil refinery business benefits from lower crude oil prices, or lower input costs. Meanwhile, the price of finished products such as gasoline, diesel and fuel oil can affect a refinery’s profitability. Consequently, the difference between the cost of crude oil and the price of the products, or so-called crack spread, is a common indicator of the potential profits.
However, some analysts see refiners equities, including some of CRAK’s marquee holdings, as poised to rebound.
A significant part of oil’s problems this year is attributable to the Organization of Petroleum Exporting Countries (OPEC) refusing to cut production in an effort to stem slumping prices. However, OPEC still has plenty of skin in the game, hence the cartel’s bullish prediction on crude prices.
OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers.[related_stories]