Oil prices are soaring, providing support for the energy sector’s status as the best-performing group in the S&P 500. Shares of oil refiners are getting in on the act.
Just look at the VanEck Vectors Oil Refiners ETF (CRAK). CRAK, which follows the MVIS® Global Oil Refiners Index, is trading modestly higher this year, and the fund could be poised for more upside as oil prices retreat because refiners are exposed to those prices.
“Refinery stocks perform somewhat differently from other kinds of oil stocks. Producers and oil service companies tend to rise on higher oil prices and activity. For refiners, crude oil is an input price, so the stocks don’t necessarily rise just because overall prices are up. They need prices for products like gasoline, diesel and jet fuel to rise too. Refiners do best when demand is rising for products, and margins for those products are on the upswing too,” reports Avi Salzman for Barron’s.
In other words, CRAK and its 25 components can act as hedges should oil prices falter a bit. Adding to the near-term CRAK case is the fact that demand for natural gas and refined products, such as jet fuel, is strong. Amid Russia’s invasion of Ukraine, Europe is being forced to source natural gas from other regions. Additionally, while prices are surging, travelers aren’t backing away from higher airfares. Both factors are positive for CRAK components.
Another point in CRAK’s favor is geography. European refiners account for a quarter of the fund’s weight, which is relevant because they’re dealing with higher natural gas prices. On the other hand, domestic refiners, which represent nearly 30% of the CRAK roster, can get their hands on cheap natural gas pumped here in the U.S. Even in a trying environment, some CRAK holdings are impressing on a year-to-date basis.
“U.S. refinery stocks have done well this year. Small-cap PBF Energy (PBF) is up 68%, Valero Energy (VLO) and Marathon Petroleum (MPC) have risen 17%, and Phillips 66 (PSX) is up 4.5%,” according to Barron’s.
Marathon Petroleum, Phillips 66, and Valero Energy are CRAK’s largest, second- and fourth-largest holdings, combining for 24.4% of the ETF’s weight. PBF Energy is one of the fund’s smaller components at a weight of 1.72%.
CRAK doesn’t have exposure to Par Pacific (PARR), a Hawaiian refiner that imports large amounts of Russian oil. These days, not having a stake in Par Pacific is benefiting CRAK because the stock is down 28% year-to-date.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.