We recently published a list of the eight best refinery stocks to invest in. In this article, we’ll take a look at how PBF Energy Inc. (NYSE:PBF) stands compared to other refinery stocks that are great investments.
The global oil refining industry has undergone significant changes over the past few years due to geopolitical tensions, changing consumption patterns, and emerging market demands. According to the U.S. Energy Information Administration (EIA), global refining capacity is estimated at 103.5 million barrels per day (b/d) as of 2023. How much refining capacity will be brought online in the coming years to meet rising demand for petroleum products following recent oil market disruptions, including Russia’s invasion of Ukraine and supply chain challenges caused by COVID-19 There is growing interest in whether This interest is primarily focused on new projects scheduled to be operational by 2028, most of which are in high-demand regions such as Asia-Pacific and the Middle East. EIA’s analysis suggests that between 2.6 million and 4.9 million barrels per day of refining capacity will be added globally over the next four years.
Countries such as China, India, and the Middle East are focused on expanding refining capacity due to rapid economic and population growth, leading to an increased need for refined petroleum products. While demand is stagnant in countries in the Atlantic Basin, including the United States and Europe, markets in Asia Pacific and the Middle East continue to see strong growth. Investment in refining projects is also increasing in these regions. For example, Saudi Aramco has consistently been the largest investor in refinery capital spending, allocating more than $9 billion annually since 2017, while China and India have combined to spend between $15 billion and $28 billion annually. is contributing.
In contrast, refiners in the Atlantic Basin are expected to face slower demand growth and intense competition. Refineries in these regions could face further headwinds from planned closures and a shift to renewable energy sources, further complicated by supply chain disruptions and geopolitical conflicts. Refinery expansions in countries such as Nigeria and Mexico will also contend with different market conditions than surging demand in Asia and the Middle East. Recent geopolitical tensions, such as the Houthi offensive in the Red Sea, have reinforced these disparate trends by increasing transportation costs and further isolating Atlantic and Pacific markets.
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Global liquid fuel consumption is projected to increase steadily until 2028, with EIA predicting it will increase to 105 million barrels per day by 2028. This demand is being driven by the growth of middle and high-income groups in developing countries, leading to increased consumption of liquid fuels. Consumer goods and transportation fuels. In response, refiners are increasing production capacity to meet this increased demand, with most of the projects concentrated in Asia and the Middle East. However, demand growth in the Atlantic Basin market may slow significantly, hampering investment in new refining projects. As a result, refinery expansion in the Atlantic Basin is likely to be slower than in the Pacific Basin.
Trends in the refining sector are further complicated by changes in global crude oil production and trade. EIA’s International Energy Outlook 2023 indicates that OPEC+ will continue to curb production until 2028, potentially restricting oil exports from producing countries in the Middle East. This could have significant implications for refiners in non-OPEC+ countries such as the US, Canada and Brazil, which need to supply crude to these new refining capacities in Asia and the Middle East.
Despite the challenges, the global refining industry is seeing a surge in capital investment by major players. Thirty-nine global refiners invested a total of $71 billion in 2023, down slightly from inflation-adjusted 2022 levels, according to the EIA report. The investment environment is being shaped by factors such as the widening of crack spreads (the difference between petroleum product prices and crude oil prices), which has driven much of the capacity expansion over the past two decades. Crack spreads remained strong in mid-2024, but have narrowed from their record levels in 2022. Nevertheless, several projects announced before the recent decline in crack spreads are expected to be operational by 2028.
In summary, the outlook for the oil refining industry is characterized by increased production capacity, particularly in the Asia-Pacific and Middle East regions, where demand is expected to grow rapidly. Although the Atlantic Basin market faces a more challenging environment, investment in refining projects remains significant. As geopolitical tensions and market dynamics continue to evolve, the industry must navigate complexities, capitalize on new opportunities, and address potential risks. With this context in mind, let’s take a look at the eight best refinery stocks to invest in.
our methodology
In this article, we used the Finviz stock screener to create a list of the best refinery stocks, focusing on refinery-specific companies from the broader oil industry. An initial list of the 21 largest oil refiners was created. From this dataset, we select the top 10 stocks most favored by institutional investors and rank them in ascending order based on the number of hedge funds that own shares of these companies as of Q2 2024. did.
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PBF Energy Inc (PBF): A leading independent refiner with a broad market reach.
Aerial view of an oil refinery with smoke rising from its chimney.
PBF Energy Co., Ltd. (NYSE:PBF)
Number of hedge fund holders: 32 people
PBF Energy Inc. (NYSE:PBF) is a leading independent oil refiner operating through two main segments: refining and logistics. The company produces a variety of petroleum products, including gasoline, ultra-low sulfur diesel, jet fuel, lubricants, petrochemicals, and asphalt. PBF Energy Inc. (NYSE:PBF) operates across the Northeast, Midwest, Gulf Coast, and West Coast of the United States, as well as Canada, Mexico, and international markets, serving diverse fuel and petrochemical needs. are in a good position to meet the requirements. . This broad geographic footprint and broad product portfolio make PBF Energy Inc. (NYSE:PBF) a strong contender for our list of best refinery stocks to invest in.
PBF Energy Inc.’s (NYSE:PBF) Q2 2024 earnings report highlighted challenges, but the company’s commitment to a strong cash position and capital allocation strategy is poised for its resiliency and long-term growth. It emphasizes possibilities. Despite missing revenue expectations and reporting an adjusted net loss of $0.54 per share, the company achieved adjusted EBITDA of $94.8 million. The primary reason for the lower earnings was the impact of extended maintenance activities at the East Coast and Midcon refineries, which reduced product yields and increased inventory levels.
The refining sector faced headwinds from lower crack spreads and lower oil differentials, which led to lower margins in the quarter. However, with most planned maintenance activities completed and assets now operating at full capacity, PBF Energy Inc. (NYSE:PBF) is well positioned to take advantage of improved refining margins in the second half of 2024. It is located in The company’s operating cash flow remained strong at $425 million, benefiting from normalized working capital of $300 million.
Additionally, PBF Energy Inc. (NYSE:PBF) clearly focuses on returning value to shareholders through its share repurchase program and regular dividend payments. During the second quarter of 2024, the company repurchased approximately $100 million of stock and paid a quarterly dividend of $0.25 per share. Since December 2022, PBF has repurchased $914 million worth of shares, reducing the total number of shares by 16%.
PBF Energy Inc. (NYSE:PBF) has a strong financial foundation with a healthy balance sheet, $1.4 billion in cash, and $1.3 billion in debt. The company’s strategic capital allocation and efficient operations in the refining industry make it an attractive investment in the oil refining sector.
Overall, PBF ranks 4th on our list of best refinery stocks to invest in. While we acknowledge that PBF has the potential for growth, we believe that some AI stocks are more likely to deliver higher returns and achieve it in a shorter time frame. If you’re looking for AI stocks that are more promising than PBF but are trading at less than 5x earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article was originally published on Insider Monkey.
