CVR Refining's Run Is Jeopardized By The Brent/WTI Spread, Analyst Says

CVR Refining LP CVRR shares have gained nearly 80 percent since August, when the spread between Brent crude and WTI began to widen, but the current spread does not appear sustainable, according to UBS. 

The Analyst

UBS’ Spiro Dounis downgraded CVR Refining from Neutral to Sell and raised the price target from $8.50 to $10.50.

The Thesis

The market may be pricing in too much upside on CVR refining on what Dounis said is a wide $5-7 Brent/WTI spread. (See Dounis' track record here.)

“We believe trade economics support a spread closer to $3/bbl, well below the $5-7/bbl range it's been trading at since August,” Dounis said. 

“As a pure-play mid-con refiner, CVRR stands to benefit the most from this wider spread; however, we believe risk skews to the downside here as the $5-$7/bbl range does not appear sustainable."

While UBS hit CVR Refinery with a downgrade, the firm did raise its price target to reflect stronger near-term earnings from the temprorary differential uplift in 2018 earnings.

Price Action

At last check, CVR Refining shares are up over 1 percent, trading at $12.05.

Related Links: 

Slump In Oil, Overseas Markets Puts Stock Indices On The Defensive