Refining Tightness to Persist, Even in a Recession

By Sam Boughedda

Piper Sandler Senior analyst Ryan Todd stated in a analysis observe Monday that they consider refining tightness will persist, even by a recession.

With rising investor considerations of a recession and, to a lesser extent, worry of potential hostile coverage impacts, U.S. refining shares have pulled again by 25% since June eighth, stated the analyst.

“PSC’s macro view suggests a excessive probability of recession in early 2023, and the historic ‘playbook’ would inform you to avoid refiners in a recession, we see the dynamics as distinctive at this time, with margin power pushed by provide constraints, slightly than demand power,” wrote Todd. “Given system tightness, even in a extreme recession (2.0 Mb/d+ of demand destruction), world utilization charges would merely strategy pre-Covid ‘mid-cycle’ ranges.”

Consequently, the analyst reiterated HF Sinclair Corp (NYSE:) as a high choose whereas reducing Valero Vitality (NYSE:) to a peer low cost.

“As now we have highlighted repeatedly over the past 6-9 months, world refining capability is VERY tight, with 2022 utilization possible ~84%, properly above the 5yr/10yr averages of 82%/81%,” added Todd. “Solely within the case of two.0 Mb/d of demand destruction would world refining utilization ranges fall to ‘mid-cycle’ ranges (81.9% vs. 82.3% 5-yr pre-Covid common). The truth is that we’d like some quantity of demand destruction to forestall 2023 margins from surpassing 2022.”