Comments on: With Oil Peaked For Now, Contrarians Likely Will Turn To Refiners http://www.peridotcapitalist.com/2008/08/with-oil-peaked-for-now-contrarians.html Stock market and investing blog published by Chad Brand, Registered Investment Advisor Mon, 30 Aug 2010 16:40:51 +0000 hourly 1 http://wordpress.org/?v=3.0 By: Chad Brand http://www.peridotcapitalist.com/2008/08/with-oil-peaked-for-now-contrarians.html/comment-page-1#comment-960 Chad Brand Mon, 18 Aug 2008 19:53:00 +0000 http://www.peridotcapitalist.com/?p=623#comment-960 Chris-<br/>Crack spreads have come down tremendously, which is why VLO stock is down 60% (earnings are down a similar amount), so I disagree that we are at a cyclical peak for the refining sector. <br/><br/>Now that gas prices have peaked and are correcting, VLO should see margins increase because they won't feel the overwhelming squeeze from demand destruction and rising input costs. Chris-
Crack spreads have come down tremendously, which is why VLO stock is down 60% (earnings are down a similar amount), so I disagree that we are at a cyclical peak for the refining sector.

Now that gas prices have peaked and are correcting, VLO should see margins increase because they won’t feel the overwhelming squeeze from demand destruction and rising input costs.

]]> By: Chris http://www.peridotcapitalist.com/2008/08/with-oil-peaked-for-now-contrarians.html/comment-page-1#comment-959 Chris Mon, 18 Aug 2008 19:35:00 +0000 http://www.peridotcapitalist.com/?p=623#comment-959 Refiners have been in an environment where demand was essentially 100% of capacity. Once upon a time, they used to run less than full capacity in between driving season and winter. That's over.<br/><br/>However, it appears possible that this situation is over. Permanently. Gasoline consumption is now declining in the US, which to my knowledge has not happened in my lifetime. <br/><br/>So the cornerstone of your thesis is a rearview look at past profitability and asset sales prices. Fair enough, but this doesn't hit me as a particularly strong margin of safety if the refiners are indeed at a major cyclical peak. Refiners have been in an environment where demand was essentially 100% of capacity. Once upon a time, they used to run less than full capacity in between driving season and winter. That’s over.

However, it appears possible that this situation is over. Permanently. Gasoline consumption is now declining in the US, which to my knowledge has not happened in my lifetime.

So the cornerstone of your thesis is a rearview look at past profitability and asset sales prices. Fair enough, but this doesn’t hit me as a particularly strong margin of safety if the refiners are indeed at a major cyclical peak.

]]> By: Chad Brand http://www.peridotcapitalist.com/2008/08/with-oil-peaked-for-now-contrarians.html/comment-page-1#comment-948 Chad Brand Tue, 12 Aug 2008 16:28:00 +0000 http://www.peridotcapitalist.com/?p=623#comment-948 Erik,<br/>Your point is a good one. I will point out that VLO sold 1 refinery in mid 2007 and the other in mid 2008. I took the average price of the two in my calculation. Erik,
Your point is a good one. I will point out that VLO sold 1 refinery in mid 2007 and the other in mid 2008. I took the average price of the two in my calculation.

]]> By: erik http://www.peridotcapitalist.com/2008/08/with-oil-peaked-for-now-contrarians.html/comment-page-1#comment-947 erik Sat, 09 Aug 2008 06:54:00 +0000 http://www.peridotcapitalist.com/?p=623#comment-947 Assumption #2 is slightly flawed, the asset values should be normalized(discounted) as in assumption #1.<br/><br/>The price for selling your house in May of 2007 is different then the price would receive in August 2008.<br/><br/>The assets that were sold off where sold based on cash flows that are dramatically different then the current cash flow of similar assets.<br/><br/>When in a bull market the cash flows are based on a bullish assumption. When in a bear market the assumptions are reversed. <br/><br/>Value is finding the middle ground between the two. Assumption #2 is slightly flawed, the asset values should be normalized(discounted) as in assumption #1.

The price for selling your house in May of 2007 is different then the price would receive in August 2008.

The assets that were sold off where sold based on cash flows that are dramatically different then the current cash flow of similar assets.

When in a bull market the cash flows are based on a bullish assumption. When in a bear market the assumptions are reversed.

Value is finding the middle ground between the two.

]]> By: 8 Stock Portfolio http://www.peridotcapitalist.com/2008/08/with-oil-peaked-for-now-contrarians.html/comment-page-1#comment-946 8 Stock Portfolio Fri, 08 Aug 2008 12:02:00 +0000 http://www.peridotcapitalist.com/?p=623#comment-946 Great insight into refiners and Valero. I had always wondered why refiners dropped as the price of oil rose. Great insight into refiners and Valero. I had always wondered why refiners dropped as the price of oil rose.

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