Here’s Why PBF Energy Stock Gushed Higher This Week
Shares in petroleum refiner PBF Energy (PBF +1.42%) rose by 10.6% in the week to Friday morning as the market reacted to the deterioration in US-Iran relations and the breakdown of the ceasefire agreement.
Why PBF stock soared this week
PBF owns and operates six refineries in the U.S. and has a 50% interest in a renewable diesel facility. While its profitability is tied to conditions in the energy market and end demand for its refined products, the key metric that governs its profitability isn’t so much the price of oil, but rather the marginal difference between the price of refined products and the oil, feedstocks, and energy products inputs that it uses to produce them. This is something usually referred to as the “crack spread” in the industry.
Today’s Change
(1.42%) $0.76
Current Price
$54.07
Key Data Points
Market Cap
Day’s Range
$53.50 – $54.80
52wk Range
$21.24 – $54.80
Volume
17K
Avg Vol
2.9M
Gross Margin
1.01%
Dividend Yield
2.06%
These observations are relevant in a week when oil prices rose amid a resumption of conflict in the Persian Gulf (thereby increasing input costs for PBF Energy), but the stock rose by double digits in response to a concomitant increase in the crack spread. In other words, the increase in the crack spread more than offset the increase in oil prices.
Image source: Getty Images.
Crude oil and refined product availability, not just price
The reason for the increase in the crack spread is that any closure of the Strait of Hormuz not only makes it harder for non-US refiners to acquire crude oil but also slows exports of refined products from the Gulf countries. These pressures naturally lead to a wider spread, and that’s great news for PBF Energy.
It also highlights the long-term advantages of owning a domestic refiner amid geopolitical uncertainty.
Lee Samaha 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.
