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How To Play Crude Oil's Decline

Published 11/04/2014, 04:17 PM
Updated 07/09/2023, 06:31 AM
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There is one sector of the equity market that may be a clear beneficiary from the massive decline in the price of crude oil -- the refiners, which are entering their most bullish time of the year (historically, November through March) as margins (crack spreads) continue to widen.

Refiner Seasonality

Oil's Performance

During the past two weeks, gasoline has held up relatively well compared to crude's steep fall.

Oil Vs. Gasoline

Pullback Then A Buy?

Technically speaking, many of the refiners are showing signs that they are ready for a pullback and we would look to be buyers on a further 3%-4% pullback near many of the following stocks’ 50-day simple moving averages (blue line).

The Refiners

Alon USA

CVR Refining

Tesoro Corp.

Valero Energy

Western Refining

Top Pick

Our favorite player in the oil-refining space is Valero Energy (NYSE:VLO) primarily due to the company’s ability to process low-grade Canadian oil sands, which could become a major catalyst on a Republican win in the US Senate. Republican control of the House and Senate would put President Obama under a great deal of pressure to make a deal on the Keystone XL Pipeline, which would take as much as 830,000 barrels per day of Alberta tar sands crude to refineries on Texas’ Gulf Coast.

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