Recent analyst report:
It is important to understand the basic mechanism or the fundamental correlation established between oil prices and refiners.
Marathon Petroleum is basically a refiner and profit margin is based on the crack spread.
Typically, there is a greater spread per barrel of oil when oil prices are higher thus increasing the profit margin. Conversely, when prices drop due to a surplus, refineries will reduce production to avoid a greater surplus, hence less profit expectation.
U.S. oil prices have entered a bear market recently. The price of a barrel of WTI oil was $50.20 per barrel on December 17. That’s down more than 34% from its four-year high of $76.40 per barrel on October 3, 2018.
U.S. oil production increased to a record 11.6 million barrels a day which covers 58% of domestic demand of 19.96 million barrels per day, according to the EIA.
It is the fundamental reasoning to justify the correlation between the refiners and the oil prices which are dropping significantly since October. In short, when oil crashes, refiners all take a hit.
If we look at how these three refiners have fared since October and compare the drop to how much WTI dropped for the same period, we can see a tight correlation. Therefore, trading and investing in MPC should be a simple equation based on future oil prices.
Technical Analysis (short term)
MPC is forming a falling wedge pattern with line support at about $57.50 (I recommend buying at this level if oil prices can stabilize) and line resistance at $63.75 (I recommend selling about 15% of your position assuming you have a profit). The line resistance is not indicated in the chart above.
A falling wedge pattern usually marks the halfway point of a major move. Assuming a more neutral outlook for oil prices in 2019, chances are that we may have a decisive breakout early next year and it could be positive.