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September 12, 2006
I agree with FBR
The market is over-reacting to short term inventories in gasoline. There may be a problem for Ethanol companies as ethanol prices track unleaded very closely. But look at the Diesel demand!!! up 7.7%! Demand on diesel keeps rising and with winter approaching, more diesel is going to be made into home heating oil, further reducing diesel supply and supporting price there. If there were public biodiesel companies they would be a good buy now.
Here is what Jacques Rousseau, CFA from FBR said about the Refinery (and ethanol) companies last week:
Refinery Rundown: Gasoline Inventories Build, Stocks Oversold.
Wednesday's DOE petroleum inventories report (for the week ended September 1) was negative for refiners due to an unexpected rise in gasoline inventories and a greater-than-expected increase to distillate stocks. The data show that the gains were driven by increased production and a high level of imports but that demand trends remain positive for gasoline (+1.4% above year-ago levels over the past four weeks) and diesel (+7.7%). We are concerned that refined product inventories have risen over the past month (+8% versus the same calendar week of 2005), but we view demand as the most important indicator, since supply changes from week to week, and with the decline in margins, we expect imports to moderate over the coming weeks. We maintain our Overweight rating on the sector and recommend investors buy on the recent pullback on the stocks. Outperform-rated Holly (HOC) and Valero Energy (VLO) are our top recommendations.
Posted by Martin at September 12, 2006 10:43 PM
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