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Exxon Torrance Refinery Fires Up USW Strike, Stocks in Focus - Analyst Blog

Wednesday's explosion at a gasoline processing unit in Exxon Mobil Corporation's ( XOM ) refinery in Torrance, CA has put the state's smooth supply of gasoline in jeopardy. This came at a time when the ongoing United Steelworkers (USW) union is giving no sign of calling off their prolonged strike at the U.S. refineries.

The explosion at Torrance which occurred on Wednesday morning injured four workers slightly and affected gasoline prices. As per reports, the blast caused a petroleum leak and a worker activated the flare system of the refinery. Torrance police officials categorized this as a large and second-alarm fire explosion.

About Torrance Refinery

The Torrance Refinery of Exxon Mobil covers 750 acres, and has approximately 650 employees and 550 contractors. It processes an average of 155,000 barrels of crude oil per day and produces 1.8 billion gallons of gasoline per year. The facility, known for special low-emissions gas, produces about 10% of all gasoline sold in California.

Torrance Happened at the Wrong Time

The timing of the Torrance explosion could not have been worse for two reasons. The first is that historically February is the month when Californian refineries slash production for maintenance work and focus on blended fuels for summer.

The second is the ongoing USW strike in domestic refineries that has affected downstream players such as the Tesoro Corp. ( TSO ), Marathon Petroleum Corp. ( MPC ) and LyondellBasell Industries N.V. ( LYB ).

USW is a prominent industrial labor union in North America having more than 0.8 million members. For the ongoing show of force with refiners, the union has involved only 5,400 workers cross Texas, California, Ohio, Indiana, Kentucky and Washington.

Our apprehensions of the USW strike being called off soon stems from the fact that workers from almost two-third of all oil refineries in the U.S. have allegiance to the union.

Let's take a look at the companies whose fortunes are closely tied to the gasoline prices in California:

San Antonio, TX-based Valero Energy Corp. ( VLO ) is the first name that comes to mind. The company is slated to benefit immensely to any uptick in gasoline prices. Our bullishness stems from the company's 15 refineries stretching from California to Canada to the United Kingdom. With this network of refineries, Valero has a combined throughput capacity of approximately 2.9 million barrels per day.

Apart from Valero, the world's largest publicly traded energy company ExxonMobil is another stock on which we will keep our eyes peeled. The energy giant's Torrance refinery hampered by the explosion on Wednesday processed only about of 155,000 barrels of crude oil per day. However, this was only a portion of the giant's total domestic refining presence in excess of 1.9 million barrels of crude oil per day.

Next comes, Europe's largest oil company Royal Dutch Shell plc ( RDS.A ) which is already bullish on 2015. The energy behemoth expects 2015 economic growth to be translated into increased oil demand. On the other hand, a persistently low oil price will likely discourage producers from increasing crude production.

As a result, the company feels that higher demand and lower supply will create an upward pressure on oil price. The California debacle will also help the company which has a refinery in Martinez which refines and markets gasoline and other petroleum products under the brand name of Shell throughout the West and northern Midwest.

Another prominent name is San Ramon, CA-based Chevron Corp. ( CVX ) which operates two of the state's largest refineries, in Richmond and El Segundo. Together these process more than 500,000 barrels of crude oil a day. The publicly traded oil and gas company produces an average of 165,000 barrels of oil and 83 billion cubic feet of natural gas each day in California.

End Note

The price of gasoline is now being seen by many investors as something that could disrupt positions held in the current volatile stock market. The California gasoline price known as California Reformulated Gasoline Blendstock for Oxygenate Blending (CARBOB) sharply rose against the futures.

However, we expect Californian gasoline prices with their own set of environmental laws along with trimmed refining capacity to pull the prices this summer. Thus, we advise investors to be careful while pouring their money into the above-mentioned domestic refining stocks in such a mixed scenario.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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