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Shares of PBF Energy Tank on Oil Price Spike

By Tyler Crowe – Sep 16, 2019 at 11:07AM

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Not every oil stock is riding high on the oil price increase.

What happened

Shares of oil refiner PBF Energy (PBF 3.21%) are down 9.7% as of 11:00 a.m. EDT today. The stock drop comes on the heels of an 11% spike in Brent crude oil prices that is likely going to raise input costs in the short term.

So what

With oil prices rising quickly today, it's a bit surprising that PBF Energy is one of the only major oil refiners in the U.S. that is seeing its stock decline substantially; several of its peers are up.

An oil refinery at dusk.

Image source: Getty Images.

Oil refiners process crude it into the products we use like gasoline. The nature of the process means that price changes in refined products tend to lag changes in crude prices. A drastic change in crude prices will tend to have a big impact on margins until refined product prices can catch up. So today's large increase in input costs could really hit PBF's margins for a quarter or two.

The reason PBF is getting hit particularly hard compared to its peers all comes down to location, location, location. Close to 70% of PBF's refining capacity is on the Mid-Atlantic coast or in California. These two areas have less access to domestically produced crude oil and are designed to handle what is called heavy, sour crude. Heavy refers to the types of hydrocarbon molecules in the mix, and sour refers to the sulfur content. This particular type of crude typically comes from the Middle East, Venezuela, Mexico, or Canadian oil sands. Therefore, Saudi Arabia's major crude complex getting knocked offline for a period of time is set to hit PBF harder than others.

Now what

How much today's news impacts PBF Energy really comes down to how long it takes Saudi Arabia to get back up and running or how long it takes gasoline prices to catch up to the spike in crude oil prices. Unless you are an expert at reading satellite images and can assess the structural damage at the Abqaiq facility from your laptop, there's no telling how long this will drag on.

From a truly long-term perspective, though, this doesn't change the thesis that much. This hasn't changed the structure of the oil market; it's more a bump in the road. So unless you were ready to make a move on PBF's stock before today, there is no reason for this to drastically alter your investment decision.

Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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