Widen your energy stock horizon if refining margins roll over, Todd Gordon advises
Be on guard for a reversal in the refining and marketing names should the crack spread divergence play out and move lower.
TL;DR
- Market signals on interest rates, inflation, the Middle East, and energy are more complex than headlines suggest.
- Falling expected inflation despite rising oil prices could lead to increased Treasury buying and less Fed hiking pressure.
- Energy stocks, particularly refiners, have outperformed due to widened crack spreads caused by global supply squeezes and U.S. refinery closures.
- A divergence between the crack spread and refiner stock performance may indicate an impending pullback in refining and marketing companies.
- Exploration and production companies, tied to commodity prices, may present a better opportunity, with ConocoPhillips highlighted as a potential pick.
- Widening crack spreads can independently keep inflation expectations elevated and pressure industries reliant on refined fuels.