Two Big Reasons to Dump your Oil Refinery

Tony Daltorio, The Investment U Research Team

Quite simply, this is not a good time to be in the business of refining oil in the United States.

The obvious reason for this is the continuing recession which has led to lower demand for gasoline and other refined products. With the summer driving season past the halfway point, having the word ’staycation’ become commonplace is not good news for the refiners.

But that’s not all. And it goes well beyond simple economic downturn.

There are other factors at work. And unfortunately, many have escaped the notice of many investors and much of Wall Street.

While everyone was focused on the sharp rise recently of the price of WTI crude oil, other things have been conspiring against domestic refiners of all sorts. Here’s what you need

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A Commodity Meltdown The accompanying three-month chart illustrates a steadily strengthening US Dollar (UUP) along with a broad-based meltdown in the prices of commodities. The U.S. Oil (USO) and Natural Gas (UNG) Funds are down over 20% and 40%, respectively, while SPDR Gold Shares (GLD) and PowerShares DB Agricultural Commodities (DBA) are both down over 10% in the last three months. The correction in commodities reflects concerns over a global economic slowdown, a strengthening U.S. Dollar (with the Euro slipping below the $1.40 mark), and a drastic run-up in prices which proved to be unsustainable. London crude oil is trading this morning below $100 despite an output cut by OPEC and looming Hurricane Ike which is expected to make landfall Saturday ...