A new US Venezuela oil deal handing control of 17 Venezuelan fields to a little known operator has suddenly put heavy and extra heavy crude back in focus. This could reshape who benefits from future supply and who is left on the sidelines. The article explains how this development connects to three downstream refiners exposed to the news and what that may mean for investors evaluating these stocks today.
The stocks covered in this article are just a sample of the idea. The full screen surfaced 22 more US and Latin American downstream refiners with equally compelling heavy crude narratives that are not discussed below. To identify and analyze the highest conviction candidates, go straight to the US and Latin American Downstream Refiners Processing Heavy and Extra-Heavy Crude screener.
Phillips 66 (PSX)
Phillips 66 is a large US based downstream energy company with complex refineries that are built to handle heavier crude grades. This directly links it to the heavy and extra heavy crude theme behind this screener. The business leans heavily on Refining and Marketing and Specialties, which generate about US$98.8b and US$97.1b in revenue respectively, with Midstream and Renewable Fuels adding a further US$22.5b and US$7.2b. With a market cap of roughly US$100.6b, Phillips 66 is a large scale player that many investors already watch closely.
If you are looking for a refined way to get exposure to discounted heavy crude flows from places like Venezuela, Phillips 66 is one of the few US operators already equipped to process meaningful volumes without extra spending. Management has talked about capacity for around 250,000 barrels per day of Venezuelan grades. The attraction is the combination of complex refineries, a large Midstream and marketing footprint, and ongoing buybacks and dividends. However, you still need to weigh that against high capital intensity, debt and the risk that heavy crude discounts or regulatory support around this new US Venezuela deal do not play out as expected. The interesting question is how much of that heavy crude upside is already in the price and how much headroom might be left if margins and cash flows stay supportive.
Heavy crude capacity, buybacks and dividends only tell part of the Phillips 66 story. The real question is what the market has already priced in. Get the missing context in the 3 key rewards and 2 important warning signs (1 is major!)
Teekay Tankers (TNK)
Teekay Tankers is a crude oil shipping company that moves barrels from producing regions such as Venezuela to complex refineries in the Americas, which ties it directly to the heavy and extra heavy crude theme behind this screener. Most of its revenue comes from the Tankers segment at about US$1.0b, with Marine Services and other activities adding roughly US$138 million. With a market cap around US$3.1b, Teekay Tankers is a mid sized pure play on seaborne crude flows rather than refinery operations.
For investors watching how new Venezuelan supply might shift from the so called dark fleet to compliant tankers, Teekay Tankers is an interesting way to look at that story. High recent profitability and a focus on modernizing the fleet offer support if tanker demand tied to heavier grades stays healthy. However, forecasts of falling revenue and earnings over coming years, an unstable dividend record and reliance on external funding underline how cyclical and capital intensive this business can be. If you want exposure to heavy crude flows but are wary of pure refinery risk, Teekay Tankers gives you a different angle on the same theme, with both the upside of strong recent cash generation and the downside of potentially sharp swings when tanker rates soften.
Teekay Tankers sits at the crossroads of heavy crude flows and compliant shipping, yet the full story often gets reduced to tanker rates and recent earnings. The real picture sits inside the 3 key rewards and 4 important warning signs (2 are major!)
Scorpio Tankers (STNG)
Scorpio Tankers is a Monaco based shipping company that operates 90 product and crude tankers worldwide, linking refineries that handle heavy and extra heavy crude to end markets through seaborne transport. With a market cap of about US$3.6b, it offers investors exposure to trade routes that can benefit when Venezuelan barrels and resulting refined products move through compliant fleets rather than the grey market.
For investors tracking the US Venezuela deal and heavier crude flows into coker equipped refineries, Scorpio Tankers offers a way to gain exposure to increased voyage lengths and utilization through a relatively young, fuel efficient fleet and a meaningfully reduced debt load since 2021. The flip side is that analysts expect revenue and earnings to decline over the next few years, and some recent strength has been helped by one off gains, so the heavy crude theme needs to be balanced against cycle risk, dividend uncertainty and the possibility that freight rates cool faster than expected.
Scorpio Tankers’ younger, fuel efficient fleet and lower debt hint at a story that many investors may be underestimating. Get the fuller picture in the 2 key rewards and 4 important warning signs (1 is major!)
Seeking Alternatives Beyond Heavy Crude?
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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