Oil and Gas

Refiner stocks to buy amid oil slump: Expert

Oil market physically oversupplied: Pro

While pressured crude oil prices have crushed many production names in the sector, refiners still have upside in the current environment, one industry analyst said Friday.

U.S. benchmark crude fell to its lowest in almost 6 ½ years this week, with one-year losses of about 50 percent. Shares of oil companies like Exxon Mobil and Chevron, among many others, have plummeted during that stretch.

An oil pump jack in Gonzales, Texas.
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But refiner stocks like Tesoro and Valero have proven resilient, rising 60 and 29 percent in the last year, respectively. The strength in those names may continue in an "oversupplied" market hit with a shortage of refiners, said Roger Read, senior energy analyst at Wells Fargo Securities.

"What we've been very favorable toward is coastal refiners overall, and Gulf Coast No. 1," Read said on CNBC's "Power Lunch."

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He has an "outperform" rating on Valero, which has multiple locations in Texas and other parts of the Gulf Coast. Read also gives the distinction to PBF Energy, whose subsidiary in June bought the Chalmette Refinery in Louisiana.

Active refiners stand to benefit amid an outage at BP's Whiting refinery in Indiana, said Patrick DeHaan, a petroleum analyst at GasBuddy.com. The closure contributed to gas prices skyrocketing in parts of the Midwest even in the low oil price environment.

"If there's nobody able to refine it or there's some scarcity at the refining level that's the huge bottleneck here," he said on CNBC's "Closing Bell."

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The refining sector looks "strong" and "healthy," DeHaan added, saying many facilities will aim to modernize in the aftermath of the Whiting issues.

Read noted the oil industry remains seasonal. Investors looking for strength may not find it as summer driving winds down, he added.


Disclosure: Read and his family do not own Valero or PBF Energy stock. Wells Fargo does not hold a greater than 1 percent stake in the firms.