Some of you today started talking about the refiners, and specifically [[TSO]].
I do not understand why the refiners have been punished as crude has moon shot. I do not know what a crack spread is. Basically, I rarely trade oil, because I always seem to lose, and obviously I do not know dick about the fundamentals.
Anyway, I know the technicals.
TSO is interesting, technically.
 The 3-year weekly above shows a nice divergence setting up on the MACD. The MACD is my favorite indicator for identifying possible bottoms in stocks that have persisted in downtrends. Also, volume is swelling, which may show capitulation or actual buying interest.
The daily chart shows that the MACD has already crossed. Stochs have turned up. RSI(2) is a tad overbought. A natural target is near the previous April high and the 50 day average. If you think the fundamentals have changed, maybe you stay in the trade longer.
Buying the stock near 27.50, with a stop below 25.00 and a target of 34.00 provides near 3:1 reward to risk.
Now, can somebody explain to me why refiners have been punished? Also, what the hell is the crack spread?
Forgive me as I’m lazy and ignorant.
Essentially, the refiners will be losing money for every barrel produced shortly.
They’ll all be bankrupt within the year.
Refiners take oil as input, refine it, then sell to end user. If their input costs are high (high oil), and they cannot pass on the high price of oil to people at the pump (at the same rate as input goes up), then they are taking the hit. This is the crack spread, difference between input price and output price, aka their profit margin. But there are also big companies like Exxon that find the oil AND refine it, so while one part of their business is doing good, the other is not. TSO and VLO are refiners.
refiners are the new airlines
Refining output is now at post-Katrina levels, and the WTI/gas spread (crack spread) is extremely tight (for now).
This will change shortly and will improve the refiners margins.
I have read about the refiners trade in the last week on practically every message board or newsletter i read.
This has to be one of the most popular future trades out there. Either they are all wrong, or they will pop right out of your MACD and RSI(2) ….
Oil will have to correct sharply once it hits the T Boone Pickens $125 target, and Gasoline will have to do a moon shot at the same time.
VLO, TSO, SUN, WNR, FTO … as they say .. Developing …
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Very interesting guys. Thanks for the comments.
Actually, after I wrote the post, I went and did some research on the crack spread. I have a pretty good handle on it now. Am I right in thinking that the spread is really not just between crude and gas but rather crude and all distillates of crude?
Is there a place to find the spread? Any charts of it?
These might be helpful as a launch pad… http://tonto.eia.doe.gov/oog/info/twip/twip.asp
http://seekingalpha.com/article/31303-betting-on-refiners-the-crude-gas-price-disparity-and-the-3-2-1-crack-spread
http://seekingalpha.com/article/73304-energy-stock-trader-tuesday-outlook
I’m too chicken to go long refiners just yet; flinching too much to short…
Wood, some big insider sales from the CEO and (I think) CFO of GES… to the tune of 700,000 shs.
FTO is the best refiner play. You get improving crack spread as well as the crude differential (FTO has heavy crude refining capability, which is solid and increasing, not to mention proximity to Canadian heavy crude).
Agreed, do to abundance of heavy crude out of Canada and few refiners in West able to refine it, FTO has the best Crack-Spread.
In additional to FTO, I have a stake in a back door play to pure refining and picked up a refiner embedded inside a Canadian oil sands company called Connacher Oil and Gas.
http://www.connacheroil.com/index.php
A bit speculative, the refiner might also provide a boost, but also be cushioned in case the trade does not work out.
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