Given the importance of crude oil derivative products, you can make a lot of money investing in refineries. To be useful, crude oil must be refined into consumable products, such as gasoline, diesel and jet fuel, automotive lubricating oil, propane and kerosene, and a myriad other products. For this reason, refineries are a critical link in the crude oil supply chain.
When considering investing in companies that operate refineries, pay attention to three criteria (included in a company’s annual or quarterly reports):
Refinery throughput: The capacity for refining crude oil over a given period of time, usually expressed in barrels.
Refinery production: Actual production of crude oil products, such as gasoline and heating oil.
Refinery utilization: The difference between production capacity (the throughput) and what’s actually produced.
Most major integrated oil companies, like ExxonMobil and BP, have large refining capacities. One way to get exposure to the refining space is by investing in these major companies. A more direct way to profit from refining activity is by investing in independent refineries, such as the following:
Valero Energy Corp. (NYSE: VLO): Valero is the largest independent refining company in North America, with a throughput capacity of 3.3 million barrels per day.
Sunoco Inc. (NYSE: SUN): The second largest refiner in terms of total refinery throughput, Sunoco refines approximately 1 million barrels of crude a day. It distributes its products primarily in the eastern United States.
Tesoro Corp. (NYSE: TSO): Tesoro is one of the leading refiners in the mid-continental and western United States. Its refineries transform crude oil into gasoline distributed through a network of about 500 retail outlets in the western United States.
