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Trump Victory Energizes Stocks in the Oil Patch

Oil refiners may benefit as an EPA policy regarding ethanol could attract scrutiny from Donald Trump.

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Written by Andrew Bary

Click HERE to Read the Article by the Publisher.


A handful of independent oil refiners are some of the biggest winners from Donald Trump’s surprise election win as investors bet that the Environmental Protection Agency may offer some relief to the industry on financial burdensome compliance with the government-mandated ethanol program.

The largest gainer is CVR Energy (ticker: CVI), which is controlled by Trump supporter Carl Icahn through Icahn’s investment vehicle, Icahn Enterprises (IEP). CVR is up $3.33 to $16.12, a 26% gain, although it’s still down 58% for the year. HollyFrontier (HFC) has gained $4, or 18%, to $26.71 and Valero Energy (VLO) is up $4.16, or 7%, to $62.16.

Trump has been critical of the EPA and what he has called its regulatory overreach although he doesn’t appear to have addressed the particulars of the ethanol program that hurt refiners.

Independent refiners have been hard hit by a rule that requires them to obtain Renewable Identification Numbers (RINs) as part of the Renewable Fuel Standard to prove compliance with ethanol blending requirements. Most gasoline sold at service stations now contains 10% ethanol. The refining industry has been pushing hard to get the EPA to relax the rules, including on the Website fixtherfs.org.

CVR controls a Midwest refining partnership, CVR Refining (CVRR), that owns refineries in Oklahoma and Kansas. It expects to pay between $210 million to $250 million this year to purchase RINs, about double the cost last year, according to CEO Jack Lipinski. That’s a big number for CVR, which has a market value of just $1.4 billion. Lipinski has argued that Big Oil, service-station chain operators and Wall Street speculators have made a killing at the expense of independent refiners through the arcane EPA rules that were never intended to penalize refiners.

“The EPA refuses to see the facts and refuses to see a better way,” Lipinski told Barron’s earlier today. He has argued that the EPA policy threatens to ruin the independent refining sector. CVR’s profits have plunged due in large part to the RINs cost with third-quarter earnings down to six cents a share from 67 cents in the year-earlier period.

Valero said it expects to pay $800 million this year to purchase RINs and HollyFrontier said it paid $63 million for RINs in the latest quarter.

The way the program works benefits those who blend ethanol with pure gasoline to create the 90% gasoline blend sold at service stations. Companies like BP, Shell Oil and Citgo that blend more gasoline than they refine are winners from the program, Lipinski says.

RINs now cost about 90 cents per ethanol gallon, versus just pennies a few years ago. “It’s absurd that the EPA continues to punish and ruin merchant refineries that have done nothing wrong when the EPA itself admits that the RFS program is not working,” Lipinski said in CVI’s recent earnings release.

The view on Wall Street has been that the EPA wouldn’t relent because of pressure from companies benefiting from the RINs windfall and bureaucratic inertia. Yet EPA’s arbitrary policy may get some scrutiny from the new Trump administration, especially since Icahn probably has Trump’s ear as one of the few prominent investors and business leaders to publicly support Trump.


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Written by Andrew Bary

Click HERE to Read the Article by the Publisher.

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