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http://biz.yahoo.com/bw/071010/20071010005647.html?.v=1

The company expects to report lower throughput margins for the third quarter of 2007 as compared to the third quarter of 2006, primarily due to substantially higher feedstock costs resulting from increased premiums for light sweet crude oils and narrower discounts for sour crude oils and other feedstocks. In total, higher feedstock costs are expected to reduce the company's throughput margins by approximately $700 million in the third quarter versus the same quarter of last year.

On the products side, many of the company's products, such as asphalt, lube oils, and petrochemical feedstocks, sold at much lower margins in the third quarter of 2007 than in the third quarter of 2006 as prices for those products did not increase as much as prices for crude oil.

In addition, industry refining margins in the company's West Coast region were substantially lower than in the third quarter of last year.
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Can anyone explain to me why this caused the shares to go up by $2.00? As usual, Mr. Market mystifies me.
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Maybe it was expected? Or people expect the spread to grow again in the near future. Although I think the shares will trade down over the next few weeks. Doesn't make much sense.
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I must confess that I was surprised by price action as well. In the pre-market, prices were unloaded at a 3% loss. At one point in the day, I think the stock was up 3%. Thats a 6% swing on the negative news.

I just met with a friend who lost a big bet on a seemingly obvious short-term securities bet (it went opposite of the conventional wisdom).

I told him, and i'll say it here. People never seem to believe this, but you just can't predict short term market movements. AFTER the fact, you can say things like "it was already priced in" or "was better than expected", but can you really say that before hand? Really? Don't kid yourself.

Maybe some very sophisticated trader could say that, but I really doubt it.

Short term movements are just mostly random noise.


I worry about the long term impact of weaker margins. Is this going to continue? Why have oil prices run from 60-80 while gasoline prices haven't moved much? What market forces determine wholesale gasoline prices? I thought inventories were unusually low, demand unusually high, and imports were kindof soft. Whats changed?

Rob
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Can anyone explain to me why this caused the shares to go up by $2.00? As usual, Mr. Market mystifies me.

I got a better understanding of the stock market when someone described Mr. Market as a group of hormonal teenagers doing all the trading. You never know when some of them will act irrationally.

IF
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I must confess that I was surprised by price action as well. In the pre-market, prices were unloaded at a 3% loss. At one point in the day, I think the stock was up 3%. Thats a 6% swing on the negative news.

Me too

I worry about the long term impact of weaker margins. Is this going to continue?

A recession would hurt margins - Play defense - Sell some calls
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"I must confess that I was surprised by price action as well. In the pre-market, prices were unloaded at a 3% loss. At one point in the day, I think the stock was up 3%. Thats a 6% swing on the negative news."

I think it is entirely possible that "the street" was fearing that the margin compression was potentially going to result in a quarterly loss for Valero. Therefore, Valero's disclosure that earnings would be $1.25 or whatever the number was, was a better scenario than some people were anticipating.

"I worry about the long term impact of weaker margins. Is this going to continue?"

Seasonally, margins have historically been lower during the parts of the year outside of the year outside of the summer driving season or the winter heating season. IMHO, we are in an in-between period where there are not the same demand drivers, hurricane season has been minimal, and we have not declared war on Iran yet. At the end of the day, until more refinery capicity is created on a global basis, Valero is going to be sitting pretty whether the short term stock price reflects that or not.
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I was just wondering if this is an early sign of 'irratioanal exuberance'. Seems like bad news is now good news, and good news is now great news, and so on up the ladder.

Although, after today, perhaps not so exuberant.
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