Refiners May Have Already Peaked For 2014

Tickers in this article: ALJ DK HFC PBF TSO UAL VLO

NEW YORK (TheStreet) -- Sun, fun and relaxation are typically associated with the summer months, but those investing in the refining space may find the upcoming season far less compelling than in years past. 

According to Colorado State University, the upcoming 2014 Atlantic Hurricane Season, which begins on June 1, is not expected to be very active this year (cue the band) thanks to an expected El Nino effect. That means the price of retail gasoline will likely be kept in check, something that may take some of the sizzle out of the refining crack spread during a time when it typically sees a bounce. Then add into the mix forecasts for temperatures to be above-normal in many parts of the country, and refiners may actually see less demand for gasoline as summer driving plans become less favorable. 

Then there's the Energy Information Administration (EIA). The government agency is predicting the price of a gallon of regular gas to drop to a national average of $3.57 per gallon through September, down from the $3.58 per gallon average seen last summer. That estimated price may prove to be high since there is a notable boost to North American oil production thanks to the shale boom. U.S. Gulf Coast crude oil is presently at a record high (207.2 million barrels) even without all the proposed Arctic drilling. Plus, according to the EIA this year's increase in production has been "particularly notable". This suggests the typical concerns associated with supply constraints can, "for now at least", be shelved. That may help take the allure out of investing in the refining sector this summer. 

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Further making me less inclined to get excited about the sector was a recent glaring comment by refining giant Valero . The industry bellwether last week said demand has simply not yet recovered from 2008 global recession. This further illustrates that the record stock market performance is not really indicative of the average Joe's spending power thanks to stagnant wage growth despite longer hours worked. This new reality (I know, I hate it too) may further crimp travel plans this summer and lessen demand for gasoline at the pump during the upcoming peak season. 

Valero also went so far as saying financially the refineries it owns in California are the is weakest group of assets. That's fascinating since there is market speculation that Valero could sell its San Francisco and Los Angeles refineries to Tom O'Malley's PBF Energy  a company that has expressed interest. The problem is if PBF is looking for growth, Valero's California assets may not be the answer.