Although some member countries have signaled an interest in reducing the cartel's production output target of 28 million b/d due to concerns of oversupply, a reduction is unlikely, in our view, given the current high crude oil prices, which have gained $5/bbl this year primarily as a result of a geopolitical risk in Iran and Nigeria. |
Chevron is still in a situation of blending in the Unocal assets and there's the matter of how it's all going to line up in terms of long-term production growth targets. |
Gasoline consumption over the past 4 weeks has been 2.4 percent above prior-year levels, on average, suggesting momentum continues to build ahead of the summer driving seasons. |
If you take a look at the supply-demand fundamentals in the world, there's not a lot of excess supply available or much coming on line. |
It is the most defensive stock among the major integrated oils and has historically outperformed its peers when commodity prices have been flat to declining, which is what we expect this year. |
Most people believe that the longer you let these things go, the more likely you are to have something go wrong. |
Refiners had every incentive to get back up because there was a lot of money to be made. |
That's going to keep them high through the spring. |
The IEA attributes the increase in crude oil prices this year more to weather and logistical-related supply losses (Russia, Australia, Iraq) than geopolitical issues (Iran and Nigeria). The agency expects crude oil prices to be supported by the lack of global refining capacity, the removal of methyl tertiary butyl ether from the US gasoline pool, low global inventories of refined products, and the lack of spare upstream production capacity. |
The key advantage for this company is that, even in a difficult environment, they make money. |
The last calendar year that Exxon Mobil was the top-performing stock in the peer group was 1998, when crude oil, natural gas and refining margins all declined vs. the previous year. |
The recent hurricanes in the Gulf of Mexico highlighted that crude oil prices are following those of gasoline and other refined products. Given our analysis that shows global refining capacity only increasing by 4.3 million bpd (5%) by 2010, we expect this pattern to continue in the coming years, supporting high prices. |
Using Valero's forecast and a 4.3% 3-year historical average for this period, we estimate an incremental supply loss of about 260,000 b/d over this 4-month period. Moreover, with much of the turnaround work expected to focus on the refineries' cat cracking units, a disproportionate amount of the production loss will likely be gasoline, reducing inventories (currently at historically average levels) ahead of the summer driving season. |
We expect inventories to continue declining over the coming weeks as supply-side constraints extend into April. |
We maintain our overweight rating on the integrated oil sector, believing that the stocks are only pricing in, on average, a $41-a-barrel crude oil price. |