Solid third quarter earnings from the major oil and gas refiners haven't fended off tanking oil prices and a "risk-off" market environment that saw global equities sell off sharply in October. The VanEck Vectors Oil Refiners ETF (CRAK), an exchange-traded fund (ETF) dedicated to refiners, slumped 10.9% in October and is down nearly 5% this month as of Nov. 15.
After hitting a nearly four-year high of $76.9 in early October, Light Sweet Crude Oil Futures (CL=F) for December 2018 have slid as low as $54.75 in November – a fall of close to 30% – as weaker consumption and rising output forecasts began to surface. Analysts cite the U.S. dollar, which has increased roughly 3% against a basket of currencies over the past two months, as a key driver for the weaker global demand outlook.
An adequately supplied market with less need for oil is likely to pressure refiners for the foreseeable future. While refinery stocks appear oversold in the short term, traders should watch these three names in the industry for shorting opportunities on retracements back to critical resistance levels.
Headquartered in San Antonio, Texas, Valero Energy is the largest independent refinery in the United States with a total throughput capacity of 3.1 million barrels of oil per day. Despite the company posting third quarter revenue of $30.8 million, it still fell short of analysts' expectations of $31.8 million. Trading at $83.27, with a market capitalization of $35.3 billion, a dividend yield of 3.89% and 1.7% short interest, Valero Energy stock is down 19.77% over the past month, underperforming the industry average by nearly 4% over the same period as of Nov. 15, 2018.
Valero shares climbed over 37% between January and early June before paring almost all of those gains by the end of October. The company's share price has continued falling in November, with a new year-to-date (YTD) low of $80.88 printing on Nov. 15. Traders should look to short the stock on retracements to the $89 level, where the price should find resistance from the 10-day simple moving average (SMA) and horizontal line price action. Consider waiting for the stochastic oscillator, which is a momentum indicator, to give an overbought reading above 80 to help time the entry.
Founded in 1875, Phillips 66, with a $44.4 billion market cap, operates as an energy manufacturing and logistics company with a total daily throughput capacity of 2.1 million barrels of oil. Warren Buffet's Berkshire Hathaway Inc. (BRK.B) disclosed in June that it had reduced its holdings by 36% in the Houston-based company. Although Phillips 66 stock is down only 2.59% on the year, it has plunged nearly 16% over the past three months as of Nov. 15, 2018, tracking the oil price lower. The company pays a 3.35% dividend yield and has 1.03% of its issued shares held short.
The chart for Phillips 66 has formed a head and shoulders pattern top over a six-month period, with the share price currently trading roughly $10 below the 200-day SMA. Those who are looking to short the stock should seek an entry point at the $104 level – an area with a confluence of resistance from the 38.2% Fibonacci retracement level, horizontal line price action and the falling 50-day SMA.
Marathon Petroleum, incorporated in 2009, refines, transports and markets petroleum products. The company, with a market cap of $45.2 billion, has a throughput capacity of 1.7 million barrels per day and owns 2,750 retail stores through which it sells transportation fuels. As of Nov. 15, 2018, Marathon Petroleum stock has fallen 15.98% over the past month, with 1.72% of the company's float held short. Investors receive a 2.82% dividend yield.
The company's share price formed a loosely constructed triple top between September and October before commencing a sharp sell-off in mid-October. Traders should consider shorting rallies into the $68 to $70 area, where the price should encounter resistance from the July swing low and the 20 SMA.