Light Refining Has Hit A Wall; "Power" Shifts To Refiners -- Seeking Alpha

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Michael Fitzimmons over at SeekingAlpha explains the market action last week affecting Bakken producers and why PSX continued to trade at new highs.  The light oil refiners have hit a wall, he says, and "power" now shifts to the refiners.

A reader and I discussed the "light oil" issue just the other day; and RBN Energy has talked about it for months. Again for newbies, the US refineries along the Gulf Coast were optimized decades ago, at huge cost, for heavy oil coming from Venezuela and Canada. These refiners are not optimized for Bakken light, sweet oil, and thus a glut of such oil, even as the pipeline situation starts to improve. The refiners have learned to mix light oil with heavy oil but the relative excess of light oil continues to be an issue.

From Michael Fitzsimmons:

My last article, Are Energy Investors Rotating Out of Shale Producers And Into Big Oil, addressed the relative outperformance of big oil companies like Exxon and Chevron over that of shale oil producers like EOG Resources, Continental Resources, and Whiting Petroleum  over the past month or so. 

During that time period, Chevron and Exxon are up while shares of EOG, CLR, and WLL are all down around -9.5%. The article provoked a lively comment section in which readers discussed everything from frigid weather in North Dakota, to production growth expectations, realized prices and simple profit taking.

However, at the end of the day I believe the selling in shale producers is because realized prices for mid-continent shale oil, barring a Presidential decree allowing crude oil exports, have significant downside from here. The ramifications will be huge. Going forward, the trend will favor the downstream operators over the shale producers. It will be a feedstock buyer's market in 2014, which bodes well for a mid and downstream company like Phillips 66.

In other words, it's not the weather.

And the president isn't going to allow crude oil exports. We're stuck with overproduction of light oil in this country. Good, bad, or indifferent that's what some folks are saying. And that's also why the price of gasoline won't go down -- the price of gasoline will more closely follow Brent, and there have been recent articles that the spread between Brent and WTI will continue to widen.

Again, this is not an investment site. Do not make any investment decisions based on anything you read here or think you may have read here.