Credit Suisse To Oil Investors: Don't Invest For Supercontango

In a report published Tuesday, Credit Suisse analysts wrote, "We felt sentiment towards the US Refiners was too pessimistic coming into 2015 and despite the rally we remain overweight." In the report, Credit Suisse noted, "There is an oversupply of global crude, demand is growing, US refiners will have to run very hard again this year (against the backdrop of a USW strike) to accommodate still rising US domestic oil supply and to absorb attractively priced imports. The oversupply of global crude is manifesting itself in fast rising inventories in the US, and at Cushing where WTI is quoted." "The contango in crude prices (notably WTI) relative to product prices is widening margins. This will lead to near term earnings upgrades – we raise our EBITDA by 28% for 2015 and are now 21% above consensus (albeit there is limited change to our 2017 forecasts). However, our title is suggestive of the idea that supercontango will be a fleeting phenomenom," the analysts commented "We'd prefer to invest on other merits – namely that US refiners are at the low end of their cost curve, generating free cashflow that is not reflected in the share price. We also still favor coastal refiners. The path of supercontango and WTIBrent will be volatile – coastal refiners can buy domestic crude when it is too cheap or profit from discounted waterborne barrels, particularly mediums and heavies," the analysts added. Credit Suisse revised the price target of the following companies: •

rated Outperform, price target raised from $125.00 to $130.00 •

rated Outperform, price target raised from $85.00 to $100.00 •

rated Outperform, price target raised from $110.00 to $125.00 •

rated Outperform, price target raised from $70.00 to $75.00 •

rated Neutral, price target raised from $44.00 to $45.00 •

rated Outperform, price target raised from $41.00 to $50.00 •

rated Outperform, price target raised from $34.00 to $40.00 •

rated Outperform, price target raised from $45.00 to $55.00 •

rated Outperform, price target raised from $15.00 to $17.00