Why Are Refineries Running From California?

Up until the end of September, U.S.-based refiners were a hot place to be for investors. Many of these companies saw stock price appreciation above 50% from Jan. 3 to Sept. 23; Western Refining (NYSE: WNR  ) was even up 103%, and Tesoro (NYSE: TSO  ) was up a hefty 73.67%. However, as prices at the pump in the U.S. have come down around 3.5% since Sept. 23, these stocks have witnessed their shares following suit, dropping upwards of 10%. 

In this downstream portion of the energy industry, a trend to keep an eye on will be refinery sales in California. Strict environmental codes are scheduled to be enforced over the next couple of years that could cost these individual companies hundreds of millions of dollars in plant renovations. The latest company to announce its preference to leave the market is Valero Energy (NYSE: VLO  ) . Management recently announced that its two California-based refineries are up for sale, following BP's (NYSE: BP  ) lead back in August when the company shed its refinery and 800 gas stations for $2.5 billion. 

The volatility in the California market will continue to play a role in these companies' decisions. It was on full display this month when gasoline prices jumped to nearly $5 per gallon. With several large integrated oil companies in this state, keep an ear to the ground for any possible further divestitures. 

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Joel South and Taylor Muckerman have no positions in the stocks mentioned above. The Motley Fool owns shares of Western Refining and ExxonMobil. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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