Chasing the price of oil was a fool’s game for most of 2014 and this year is shaping up to be more of the same. Crude plummeted 9% to the $48 a barrel level Wednesday after inventories rose by 6.3 million barrels to 413 million last week, marking the fourth straight week of gains, according to the Energy Information Administration.
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You can still invest in energy without the direct exposure to the price of oil advises, Tim Rudderow, chief investment officer, of Mount Lucas Management. “Buy Valero (VLO), buy Marathon (MRO), buy the refiners.” Initially these companies fell in sympathy with the drop in oil, but have been on the rebound outperforming the United States Oil ETF (USO) which is down 10% so far this year.
Oil Refining Stocks 2015:
Tesoro (TSO): +15%
Valero (VLO): +11%
Marathon (MRO): -0.5%
When oil is cheaper, it can cost less for the refiners to convert oil into gasoline or other chemicals. Along with this benefit, Rudderow also believes company fundamentals are solid. “Their feedstock [raw materials] costs are down, they look strong as companies, they are raising dividends.”
Last month Valero boosted its quarterly dividend 45% to $0.40 from $0.275 when it reported earnings. Tesoro is expected to report quarterly results on February 11th and Marathon Oil on the 19th.