There have been a mere two trading sessions since Republican Donald Trump pulled off one of the most stunning upsets in modern American political history, but financial markets are already deciding potential sector- and industry-level winners and losers under the new Trump Administration.
Heading into the election, conventional wisdom dictated that alternative energy stocks and exchange traded funds would benefit from a victory by Democratic nominee Hillary Clinton. Conversely, the possibility of a Clinton was seen as potentially harmful to traditional fossil fuels makers. Obviously, those are scenarios investors do not need to consider because Trump won and it appears some market observers are bullish on traditional energy firms, including refiners.
Trump’s win could benefit the VanEck Vectors Oil Refiners ETF (NYSEArca: CRAK), the first dedicated exchange traded fund play on refiners equities.
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.
[related_stories]Some speculate that refiners could get a boost if Trump eases some regulations on the industry.
“Independent refiners have been hard hit by a rule that requires them to obtain Renewable Identification Numbers (RINs) as part of the Renewable Fuel Standard to prove compliance with ethanol blending requirements. Most gasoline sold at service stations now contains 10% ethanol. The refining industry has been pushing hard to get the EPA to relax the rules,” reports Andrew Bary for Barron’s.
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Furthermore, many refiners have generated free cash flow, which have been returned to shareholders through dividends and share buybacks. While yields have remained relatively low, dividend growth is picking up.
“The view on Wall Street has been that the EPA wouldn’t relent because of pressure from companies benefiting from the RINs windfall and bureaucratic inertia. Yet EPA’s arbitrary policy may get some scrutiny from the new Trump administration,” according to Barron’s.
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VanEck Vectors Oil Refiners ETF (NYSEArca: CRAK)
