Oil Refiners Hit by ‘Wave 2’ Supply Shock

Why rising gas prices aren’t helping – and how cheap airplane fuel is flooding the market

Andrew Willis 2 July, 2020 | 1:39AM
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Andrew Willis: Prices at the gas pumps have come up recently, from the staggering lows of two months ago, as people seize the summer and hit the road, leading to increased demand. But the same cannot be said for independent refineries, that rely on other types of fuels.

Retail gasoline consumption apart, the rest of the oil market is still… mixed, particularly when it comes to airplane fuel, according to Morningstar’s Allen Good and Marloes Spanjersberg. They say travellers are looking to get out of the house right now, but are avoiding air travel, which means a weak jet fuel market for 2020. Prices are already down 70% in this segment, but refineries were quick to act and slash the amount of jet fuel inventory they held, giving themselves a buffer to absorb the demand shock.

Unfortunately, this hasn’t been enough to stop a spillover of jet fuel. We think refineries have been resorting to blending it into other oil-based distillates, creating a build-up in multiple inventories. That said, we see better days ahead for refineries. We still see their valuations as attractive, and they continue to discount an easing of lockdowns and when we all take to the skies, once again.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
HF Sinclair Corp58.41 USD2.49Rating
Marathon Petroleum Corp179.67 USD2.80Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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