Although oil prices have retreated a bit in recent sessions, the United States Oil Fund (NYSE:USO) is still up 3.3 percent over the past month. That move has been enough to boost the fortunes of an array of equity-based energy ETFs.
Included on that list is the Market Vectors Oil Refiners ETF (NYSE:CRAK). CRAK, the first dedicated refiners ETF, is higher by 4.3 percent over the past month. That is impressive when considering refiners benefit when oil prices slide due to lower crack spreads, perhaps the inspiration for CRAK's ticker, and the few ETFs with robust refiners exposure have been noticeably less bad this year than traditional equity-based energy sector counterparts.
The gains posted by some refining stocks, including several of the 26 held by CRAK, are enough to make investors ponder if the ETF and its holdings can remain firm going forward.
We maintain a favorable view of the refiners, but do not think the shares are screaming buys. However, buying opportunities could present themselves, with seasonally weaker demand and the return of previously offline refineries likely to weigh on margins and share prices. Beyond the seasonal lull, we expect gasoline demand growth to continue, thanks to sustained low prices, while a potentially above-average maintenance season could keep product inventories in check, said Morningstar in a research note.
CRAK tracks the Market Vectors Global Oil Refiners Index (MVCRAKTR), a modified market cap-weighted index intended to track the performance of the largest and most liquid companies in the global oil refining segment, according to Market Vectors.
CRAK, which debuted in August, is home to well-known refiners such as Marathon Petroleum Corp. (NYSE: MPC), Phillips 66 (NYSE: PSX), Valero Energy Corp. (NYSE: VLO) and Tesoro Corp. (NYSE: TSO). Those stocks combine for about 26 percent of the ETF's weight.
Refiners have not been spending on big acquisitions and do not face some of the credit issues smaller exploration and production firms are dealing, two traits that bode well for CRAK and its constituents over the long-term.
However, U.S. refiners' recent investment in logistics assets, their highly complex assets, and their ability to flex crude types (domestic/import, light/heavy, and so on) leave them in a strong position to compete in that type of environment. Over the long term, we view U.S. oil production as cost-competitive with other global supply sources, and we therefore expect it to resume growing in the next couple of years. At that point, transportation costs will support differentials, regardless of export approval, adds Morningstar.
And do not forget that some big name investors like refiners. Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK-A) is now the largest non-mutual fund shareholder of Phillips 66, CRAK's largest holding.
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