Crude Investors Beware! Crude Might Fall Even Lower
Moving averages
Refining companies Delek US (DK) and Alon USA Energy (ALJ) are trading 14.5% and 14%, respectively, below their 100-day moving averages. Delek has been in a continuous downtrend since July after it closed near its 2015 highs. The stock formed a double top pattern in July and fell since then. For the last six months, the stock struggled to cross its 100-day moving average. On the other hand, Alon moved in a narrow range of $16–$18 since October 2015. After the Fed’s decision, Alon is trading below $15 as of January 5. HollyFrontier (HFC) is also trading below its 100-day moving average.
Phillips 66 (PSX) and Marathon Petroleum (MPC) are trading 2.9% and 0.5% below their respective 100-day moving averages. Also, Valero Energy (VLO) and Tesoro (TSO) are trading 8% and 2.4%, respectively, above their 100-day moving averages. Tesoro was trading below its 100-day moving average until December 29, 2015. Then, it crossed the moving average.
Also, the Energy Select Sector SPDR Fund (XLE) is trading 7% below its 100-day moving average. The above table shows these downstream companies’ moving averages and forward target prices.
Analysts’ estimates
Analysts’ estimates suggest that the ten large-cap refiners might return 24% on average in the next 12 months. Frontline refineries Phillips 66, Valero Energy, Marathon Petroleum, and Tesoro could rise by 21.3%, 14%, 36%, and 17%, respectively, from their current levels.
Also, Delek, Alon, and CVR Refining could rise by 53%, 30%, and 14%, respectively, from the current levels. In terms of the current and forward PE (price-to-earnings) ratio, Delek, CVR Refining, and HollyFrontier are relatively cheaper than other downstream companies.
In the next part, we’ll analyze the refining capacities of these downstream companies.
Browse this series on Market Realist: