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New refineries set to come online could cut refiner stocks, gas prices – Barron's

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Oil and Gas Industrial zone,The equipment of oil refining,Close-up of industrial pipelines of an oil-refinery plant,Detail of oil pipeline with valves in large oil refinery.

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According to a report from financial publication Barron’s, the performance of refining stocks may change next year as two long-awaited refineries in Mexico and Nigeria are set to begin production. The new facilities are expected to produce 1 million barrels of fuel per day, which could potentially impact refining stocks and influence gasoline prices.

The addition of these two refineries would increase capacity by more than the average annual increase seen from 2015 to 2019, during which 800,000 barrels per day of new capacity were added each year, as per Tudor Pickering Holt analyst Matthew Blair.

The VanEck Oil Refiners ETF (NYSEARCA:CRAK) has experienced a 16% Year-to-Date increase, while individual refining stocks have performed even better. PBF Energy (PBF) is up 42%, Marathon Petroleum (NYSE:MPC) has seen a 39% increase, Valero Energy (NYSE:VLO) has risen 22%, Phillips 66 (PSX) is up by 18%, and HF Sinclair (DINO) has gained 18%.

These newly added refining capacities in Nigeria and Mexico may put existing oil refiners at a disadvantage, as the oil market is global. Analysts predict that gasoline cracks, which measure refiners’ margins, will drop to $12 per barrel and diesel cracks will reach $28 per barrel in 2024, compared to the current levels of $19 and $32, respectively.

However, in the short term, refiner stocks and gasoline prices could continue to rise due to low fuel inventories and an increase in refinery outages so far this year. Additionally, higher planned maintenance following a period of near-full production adds further pressure.

The Energy Information Administration’s most recent report indicates that U.S. gasoline inventories are 4% below the five-year average for this time of year, while diesel and other distillates are 14% lower.

Furthermore, Russia’s temporary ban on gasoline and diesel exports has exacerbated the global fuel market’s stress. The duration of the ban will determine its impact level. Analysts at TD Cowen estimate that the ban may last just over a month and could present further opportunities for U.S. refiners.

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