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US oil shipments by rail are at an all-time high and there is no reason to expect that WTI dislocations should disappear. The Keystone XL project will likely be approved by the end of summer, but we expect WTI discount relative to Brent to last well into 2014. US refiners will continue to benefit from a discounted crude price structure relative to their global counterparts. All else equal, the spread compression is negative for refiners, but our refiners stock bet was never based on a $20-25 price gap. Even a $8-12 spread will allow for generous profits, through a combination of wide cracks and competitive international prices for petroleum products.
Bottom Line: The Brent/WTI spread will not narrow sustainably from current levels at least until mid-2014. Stay long US refinery stocks.
This post was originally published by the BCA Research blog.