Pump prices keep rising higher, boosting outlook for U.S. refiners (NYSEARCA:USO)

U.S. gasoline prices have surged 12% in the past month to average $3.51/gal as of January 28, according to AAA, threatening the Federal Reserve’s inflation fight and potentially extending last year’s big rally in refinery equities.

Although winter storms in December contributed to tighter supply, January’s mild weather may have led to more drivers getting behind the wheel, pushing up pump prices, AAA said, adding the cost of oil has been bolstered by market optimism that global oil demand will prove stronger than expected in 2023 due to the reopening of China’s economy.

in a “seasonally unusual pattern,” gas prices have pushed higher throughout January,” Bespoke Investment Group said. “Whereas prices have historically risen an average of less than 1%” YTD through January 26, “this year the increase has been 9.16%.”

Gasoline exports have roughly doubled from a year ago, and China’s reopening means there are more people using fuel.

Diesel is rising again toward 2022’s highs, with crack spreads hitting more than $60/bbl this past week, from $50/bbl in November and $25/bbl a year ago; diesel could rise further as Europe bans Russian oil products starting February 5.

Companies have been taking more refineries out of operation for maintenance in recent weeks; with less fuel being sent to market, prices are rising.

“We see tailwinds building again for U.S. refiners,” Bank of America analyst Doug Leggate believes, favoring Valero Energy (VLO), PBF Energy (PBF) and Marathon Petroleum (MPC).

ETFs: (NYSEARCA:USO), (NYSEARCA:UGA), (NYSEARCA:CRAK)

Valero (VLO) was the first of the major refiners reporting Q4 earnings this week, easily beating Wall Street estimates.