What happened
Shares of PBF Energy (PBF -0.37%) gained 11% Friday on extremely heavy trading volume as investors rushed to buy shares of the small oil refiner.
Today's big gain for PBF wasn't a product of anything the company itself has done, but was based on speculation that it would be the biggest beneficiary of the fire at the Philadelphia Energy Solutions (PES) refinery in South Philadelphia early this morning. The refinery, which is jointly owned by multiple private and public companies, is said to be the biggest in the eastern U.S. and is a major supplier to the region.
So what
For PBF, the thesis goes, this could be a boon. There's a chance this fire could have a major impact on fuel supplies in the region, and PBF's refineries in the area would be needed to fill the gap to meet demand. To be specific, PBF isn't the only refiner that would benefit from any prolonged shutdown of the PES refinery; moreover, there are plenty of other major refiners on the Eastern Seaboard that would play some role in filling the supply gap.
Image source: Getty Images.
However, what makes PBF unique is its size. As a small refiner, it is positioned to see the most in per-share profits from higher demand for fuel from its nearby refineries, while its bigger peers simply wouldn't see as much upside from a single, localized incident such as this.
Now what
Let's start with the catalyst for today's surge: I think it's a blind risk to buy solely based on speculation that the PES refinery fire is creating an opportunity for PBF.
To start, there's very little to go on at this stage to quantify how much impact the fire will have on the refinery's operations, or what effect it will have on fuel supplies in the region. And even in a likely worst-case scenario, I wouldn't expect PBF to see any benefits from a sustained outage lasting more than a few quarters. That makes buying on speculation over this fire a terrible thesis to underpin an investment.
However, from a long-term perspective, there are some things about PBF that look good. Management told us on the first-quarter earnings call that it has front-loaded its maintenance capital spending this year, and expects to have completed all of its 2019 annual maintenance projects by the end of the second quarter. That should result in improved operations and profitability across its entire refining operation in the second half of the year.
Moreover, the company has several plans that should pay off in coming years, by building pipelines to add much-needed capacity to major oil and gas plays.
Bottom line: Don't get too caught up in the short-term speculation around one event; it could end up being a nothing burger with a side of nope, causing short-term losses as other speculators sell off when they realize there's not really any upside to the fire. But a patient investor with a longer-term focus could find value in PBF over the next few years.
