We recently published a list of 8 Best Oil Refinery Stocks To Invest In. In this article, we are going to take a look at where PBF Energy Inc. (NYSE:PBF) stands against other best oil refinery stocks to invest in.
The global oil refining industry has undergone significant shifts over the past few years, driven by geopolitical tensions, changes in consumption patterns, and emerging market demands. As of 2023, the world’s refining capacity was estimated at 103.5 million barrels per day (b/d), according to the U.S. Energy Information Administration (EIA). With the recent disruptions in petroleum markets, such as Russia’s invasion of Ukraine and supply chain challenges due to COVID-19, there is heightened interest in how much refinery capacity will come online in the coming years to meet the rising demand for petroleum products. This interest is primarily centered on new projects expected to be operational by 2028, most of which are in high-demand regions like Asia-Pacific and the Middle East. The EIA’s analysis suggests that between 2.6 million b/d and 4.9 million b/d of additional refining capacity will be added globally over the next four years.
The focus on expanding refining capacity in countries such as China, India, and those in the Middle East stems from their rapid economic and population growth, which translates into a rising need for refined petroleum products. While countries in the Atlantic Basin, including the United States and Europe, have seen stagnating demand, the Asia-Pacific and Middle Eastern markets continue to grow robustly. These regions have also experienced increased investments in refining projects. For instance, Saudi Aramco has consistently been the largest investor in refinery capital expenditures, allocating over $9 billion annually since 2017, while China and India collectively contributed between $15 billion to $28 billion each year.
In contrast, refiners in the Atlantic Basin are expected to face slower demand growth and fierce competition. Refineries in these regions may encounter additional headwinds due to planned closures and the transition to renewable energy sources, which is further complicated by supply chain disruptions and geopolitical conflicts. Refinery expansions in countries like Nigeria and Mexico will also contend with distinct market conditions compared to the surging demand in Asia and the Middle East. Recent geopolitical tensions, such as Houthi attacks in the Red Sea, have increased shipping costs and further isolated the Atlantic and Pacific markets, reinforcing these divergent trends.
Global consumption of liquid fuels is projected to increase steadily through 2028, with the EIA estimating a rise to 105 million b/d by 2028. This demand is being fueled by a burgeoning middle class and higher incomes in developing nations, leading to increased consumption of consumer goods and transportation fuels. In response, refiners are ramping up capacity to meet this demand growth, with most of the projects concentrated in Asia and the Middle East. However, the Atlantic Basin market will see much slower demand growth, which could hinder investment in new refining projects. Consequently, the refinery expansions in the Atlantic Basin will likely lag behind those in the Pacific Basin.
The dynamics of the refining sector are further complicated by shifts in global crude oil production and trade. The EIA’s International Energy Outlook 2023 indicates that OPEC+ will continue its production restraint through 2028, potentially limiting crude oil exports from Middle Eastern producers. This could have profound implications for refiners in countries outside of OPEC+, such as the United States, Canada, and Brazil, who will need to supply crude oil to these new refining capacities in Asia and the Middle East.
Despite the challenges, the global refining landscape is witnessing a surge in capital expenditures from major players. The EIA’s report shows that 39 global refiners invested a total of $71 billion in 2023, marking a slight decline from 2022 levels after adjusting for inflation. The investment landscape is shaped by factors like growing crack spreads—the difference between petroleum product prices and crude oil prices—which have driven much of the capacity expansions over the past two decades. Although crack spreads remained strong in mid-2024, they have narrowed since the record levels of 2022. Nevertheless, several projects announced before the recent decline in crack spreads are expected to come online by 2028.
In summary, the outlook for the oil refining industry is marked by growth in capacity centered in the Asia-Pacific and Middle East regions, where demand is projected to rise sharply. While the Atlantic Basin market faces a more challenging environment, investments in refining projects remain significant. As geopolitical tensions and market dynamics continue to evolve, the industry must navigate a complex landscape to capitalize on emerging opportunities and address potential risks. Keeping this context in view, let’s take a look now at eight best oil refinery stocks to invest in.
Our Methodology
For this article, to compile our list of the best oil refinery stocks, we used Finviz stock screener and narrowed our focus from the broader oil industry to firms that limit themselves to oil refineries. A list of the 21 largest oil refining firms was initially compiled. From this dataset, we selected the top ten stocks most favored by institutional investors and ranked them in ascending order based on the number of hedge funds holding stakes in these firms as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aerial view of an oil refinery, with smoke billowing from its chimneys.
PBF Energy Inc. (NYSE:PBF)
Number of Hedge Fund Holders: 32
PBF Energy Inc. (NYSE:PBF) is a leading independent oil refining company that operates through two primary segments: Refining and Logistics. The company produces a variety of petroleum products, including gasoline, ultra-low sulfur diesel, jet fuel, lubricants, petrochemicals, and asphalt. With operations spanning the Northeast, Midwest, Gulf Coast, and West Coast of the United States, as well as Canada, Mexico, and international markets, PBF Energy Inc. (NYSE:PBF) is well-positioned to meet diverse fuel and petrochemical needs. This broad geographic footprint, coupled with an extensive product portfolio, makes PBF Energy Inc. (NYSE:PBF) a strong contender in the list of best oil refinery stocks to invest in.
PBF Energy Inc. (NYSE:PBF) Q2 2024 earnings report revealed challenges, but the company’s strong cash position and commitment to capital allocation strategies underscore its resilience and long-term growth potential. Despite missing on earnings expectations and reporting an adjusted net loss of $0.54 per share, the company achieved an adjusted EBITDA of $94.8 million. The primary reason for the earnings miss was the impact of extended maintenance activities at its East Coast and Mid-Con refineries, which reduced product yield and increased inventory levels.
The refining segment faced headwinds from declining crack spreads and tightening crude differentials, which led to lower margins during the quarter. However, with most of the planned maintenance activities completed and assets now operating at full capacity, PBF Energy Inc. (NYSE:PBF) is well-positioned to capitalize on improved refining margins in the second half of 2024. The company’s cash flow from operations remained robust at $425 million, benefiting from a $300 million working capital normalization.
In addition, PBF Energy Inc. (NYSE:PBF) focus on returning value to shareholders is evident through its share repurchase program and regular dividend payments. During Q2 2024, the company repurchased approximately $100 million in shares and paid a quarterly dividend of $0.25 per share. Since December 2022, PBF has repurchased over $914 million worth of shares, reducing its total share count by 16%.
With a healthy balance sheet, $1.4 billion in cash, and $1.3 billion in debt, PBF Energy Inc. (NYSE:PBF) is on solid financial footing. The company’s strategic capital allocation and efficient operations in the refining industry make it an attractive investment in the oil refinery sector.
Overall, PBF ranks 4th on our list of Best Oil Refinery Stocks To Invest In. While we acknowledge the potential of PBF to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PBF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.