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Wednesday, June 21, 2017

Refinery Stocks Coming Under Selling Pressure

In May, PetronM and Hengyuan rallied strongly to their high. Since then, they have been sliding. Most investors would think that the reason for this is the drop in crude oil price. That's not quite right. 

 
Chart 1: PetronM's monthly chart as at Jun 21, 2017_10.00am (Source: ShareInvestor,com)

 
Chart 2: Hengyuan's monthly chart as at Jun 21, 2017_10.00am (Source: ShareInvestor,com)

I had posted before that the earnings of refinery companies depend on crack spread, which is the differential between the price of crude oil and petroleum products extracted from it. To give you an idea how that impact the earnings of these companies, I have created a graph comparing their earnings for the period Mar 2014 to Mar 2017 with the crack spread for that period. As you can see the earnings dropped whenever crack spread dropped. 


Chart 3: Crack Spread (Front Month) and PetronM & Hengyuan's profits for Mar 2014-Mar2017 (Source of Chart: Quandl)

Now, crack spread is again dropping. The smart money is again selling these stocks since they have rallied so sharply in May. If you have good paper profit sitting in these stocks, you should consider SELLING INTO STRENGTH.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision

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