Monday, August 6, 2007

Where there's smoke there's fire..

Except for some notable exceptions...but I'll get into that story later...

But did anyone check out what has happened to the refiners lately?

They've been crushed. The story is the crack spread has gotten crushed. So it has. But that's not the real story.

These stocks have been used as a source of liquidity by the leverage players in the market who have had a gigantic margin call.

Marathon (MRO 49.81) has gotten crushed as last week it announced it is going to pick up Western Oil Sands of Canada. Tesoro (TSO 45.42) reports earnings tomorrow and it's down 20 points from its high.

My questions for the doom and gloomers is: When was the last refiner built in the US? Try 30 years ago. And secondly, did anyone notice that the refiners announced Friday that they don't have to run at 93-95% of capacity? Here's the point. Operating at a lower capacity increases margins, because they consume less oil, and the price of crude comes down. It's not a one way ticket as the sellers or shorts would believe.

They are worth a look.

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