Delek US Holdings (NYSE: DK) : Is It Time For A Turnaround In Refineries?

It was a tough summer for U.S. refiners. Profit margins have come under pressure as oil prices moved higher because of geopolitical tensions, while at the same time, prices for refined products such as diesel and gasoline have been relatively tame. As a result, refiners had to pay higher prices for input costs (crude oil) without a corresponding revenue increase for refined products sold.

Another challenge for U.S. refiners has been the WTI-Brent spread. This is the difference between U.S. domestic West Texas Intermediate (WTI) crude oil and a comparable barrel of European Brent oil. Over the summer, a narrowing of this price differential eroded U.S. refiners' price advantage, sending stock prices for these refiners 20% to 50% lower. The narrowing of the price differential was a result of supply disruptions from Canada and record U.S. refinery demand.

But the trends have recently shifted, and the WTI-Brent spread has once again widened. Supply disruptions in Libya and Iraq have supported Brent prices, while WTI prices have declined. The futures markets are now pointing to a wider expected crack spread (the difference between crude oil and refined petroleum products), which in turn should lead to higher profits for U.S. refiners.  (more)

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