Morgan Stanley: Global Refinery Turnaround Is Good For These Oil Stocks

In a recent report, Morgan Stanley analysts looked at the role that refinery turnarounds will play in the near-term crude oil price environment.

The report also named several stocks that analysts believe will continue to benefit from the current spread environment.

Turnaround Outlook

U.S. turnarounds (seasonal extended shutdowns) are currently near peak levels for the year. About 1.5 MMbpd of U.S. capacity is currently offline, while close to 1.2 MMbpd of the shutdowns were planned and 300 mbpd were unplanned.

Related Link: Why Oil Bulls 'Need To Be Cautious'

Analysts see a "significant pickup" in refinery restarts in the next three to four weeks.

While some see this ramp up in refining as a reason to be bearish on names in the space, Morgan Stanley analysts believe that upcoming turnarounds in other parts of the world will continue to support favorable spreads.

Asian And European Turnarounds

Despite the U.S. already reaching peak turnaround levels, Europe's current turnaround level (1MMbpd capacity reduction) is expected to remain near its peak until mid-June.

Across the Pacific, analysts see even less reason to fear U.S. restarts.

While 1.5 MMbpd of capacity is expected to return in the U.S. in coming months, about 2.5 MMbpd of capacity will be offline when Asian turnarounds reach peak levels in May-June.

Wide LLS Spread Tailwinds

Analysts point out that the Brent-LLS (Light Louisiana Sweet) spread, which has averaged $0.51/bbl over the past six months, closed at $4.50/bbl on March 6.

Analysts explain that several companies are major beneficiaries of a wide LLS spread, including Marathon Petroleum Corp MPC, Valero Energy Corporation VLO, Phillips 66 PSX, Alon USA Energy, Inc. ALJ and Exxon Mobil Corporation XOM.