In a note released on Friday morning, Citigroup analyst, Faisal Khan, provided an outlook on the US refining and marketing sector.
As a basis for optimism, Khan list four key factors:
- Continued growth in the US, and Canadian oil production.
- Oil prices appear ‘sticky’ due to volatility in the Middle East.
- US oil price differentials appear ‘somewhat contained’ at US$ 5 – 10/bbl. The current balance between producer net backs and refining feed stock discounts are at a constructive level.
- Headway on refining closures in the Atlantic Basin is only a matter of time.
Valero Energy – Buy, US$ 63 price target
Khan continues to view greater feedstock discounts at Valero’s high conversion refineries as a result of crude on crude competition in the US Gulf Coast as a positive for the stock. Moreover, he believes Valero will be the ‘prime beneficiary’ of incremental heavy and medium crude supply on the Gulf Coast.
Western Refining – Buy, US$ 55 price target
Khan has reiterated his rating and price target on Western due to its restructuring potential. He believes Western could follow the lead of peers, such as Williams companies, who have unlocked greater dividends and dividend growth through a master limited partnership.
Marathon Petroleum – From neutral to buy, price target from US$ 96 to US$ 94
Marathon Petroleum Corporation has decided to acquire Hess’ retail assets at a cost of approximately US$ 2.8 billion. In 2013, Hess’ retail assets generated approximately US$ 175 million EBITDA and Marathon expects to double this by the end of 2017.
HollyFrontier – From sell to neutral, price target from US$ 42 to US$ 40
Alon USA Partners LP – From buy to neutral, price target US$ 19
Adapted from a press release by Emma McAleavey.
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/14072014/citigroup_favourites_917/