US energy boom finally reverberates

Valero announces it's using domestic crude to feed its refineries.

By Jim Cramer Jan 30, 2013 10:10AM

thestreet logoOil derricks Comstock CorbisIt's happening. The revolution in oil and gas is happening. You just need to know where to look for it. We see it in Valero Energy (VLO), the world's largest independent refinery, which reported phenomenal earnings Tuesday morning, in large part because of the incredible boom in U.S. drilling.

While there were many positives in the quarter, the best fourth quarter since 2005, when cars were using much more gasoline, Valero gave you this amazing morsel: "We replaced all imported light foreign crude oils with cheaper domestic crude oils at our Gulf Coast and Memphis refineries. Since we expect U.S. and Canadian crude oils to become increasingly available, we are pursuing options to process additional volumes of these cost-advantaged crudes throughout our refining system."


In other words, because of the Bakken and the Eagle Ford and so many other terrific domestic prospects, one of our major refinery powers doesn't need to import expensive oil from other countries to feed its refineries, and this trend is only going to get stronger.


This change is dramatic for shareholders of Valero, because prices at the U.S. pump are reflecting the formerly imported crude, which is now touching $100 a barrel. The difference is monumental and could cause Valero to go much higher as the marketplace takes into account how Valero has become the most aggressive company to take advantage of our newfound, technologically derived oil riches. Only HollyFrontier (HFC), which hit a 52-week high, remains undervalued.

This disparity between cheap, cleaner domestic oil and expensive imported crude is one of the reasons I was so aggressive in telling you that the value of Hess (HES) is well in excess of what it is selling for.

The very tough-minded Elliott Management has taken a big stake in Hess and is pushing for Hess to spin off its Bakken, Eagle Ford and Utica Holdings, which are all fabulous properties. The other day, Hess committed to getting out of its expensive and nonproductive East Coast refinery and terminal network, which is dedicated to importing the expensive crude that Valero no longer has to contend with at its Memphis and Gulf Coast refineries. The lack of pipe inhibits Hess from taking advantage of all of that terrific U.S. crude.

Elliott contends that the spinoff could double the value of the company, and it is even proposing its own slate of what would be very smart directors, including some respected oil men, but to me this feels as if Elliott won't be happy until the whole company is put up for sale.


There are two important takeaways here. The first is that the marketplace is still well behind in recognizing the worth of our domestic oil, particularly with the $100 worldwide crude umbrella. The second is that if we had an energy policy in Washington that actually incorporated the domestic oil and bountiful natural gas into its thinking, we could smash OPEC, clean our skies, right our trade balances, become the cheapest place on earth to do business and put millions of people to work doing so.


Instead, we haven't figured out a way to leverage the oil, and we are barely scratching the surface of natural gas use. Ford (F) admitted to me that there simply isn't enough natural gas infrastructure to sell nat-gas cars and trucks against, and there won't be any anytime soon.


What a sad set of circumstances. I guess we should be grateful that at least Valero has figured out a way to profit from it.


cramer's face


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in stocks mentioned.



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Jan 30, 2013 11:04AM

once 11 million illegal aliens become "legal" we'll see another serious drop in salaries. 


although the housing industry will enjoy remodeling regular homes into multi dwelling compounds.  per code or not, it's going to happen as we become the next mexico. 


after the amnesty occurs we'll see ANOTHER influx across the border for those who want "in" in another 27 years. 

Jan 30, 2013 10:29AM

I think GM should have to give every tax paying American free oil changes and tire rotations for the rest of their lives.......... We ought to get something out of the debacle.


Jan 30, 2013 11:19AM
As the arbitrage of world economies meld into one; which is undoubtedly the game plan, the arbitrage will result in many many Mexicans returning to their homeland.  When the wages in Mexico arbitrage out; and they eventually will, there will be little "attraction" in moving to America.  And of course our social infrastructure will be a complete mess.  Anyone thinking this is not the end result doesn't understand basic economics.  Cities throughout America are now more resembling the lower class countries of the world.  Just look at Chicago, Detroit, and California will very soon have to abandon most all of their social infrastructure just to keep the street lights on.  What are they now like 700 billion in debt?  JMHO
Jan 30, 2013 10:54AM
Advice I recieved from a market guru many years ago.  Never stand in the way of a Charging Bull.  And look at this Bull.  Completely discounting any restraint this market seems hell bent on going up up and away. This can go on and on and on.  But of course most here should understand the very poor fundamentals that will eventually say whoa.  My first reality check will be the housing market.  All pressures are to lower wages in this country and inflate everything humans need to survive.  There will not be that much left for housing unless of course you think every international economist is wrong.  We all know this is an arbitrage where the population of China is 5 times ours and they will indeed crush us. Nothing ever goes straight up or down.  Remember when we went form 13,000 down to like 7200.  Herky jerky up a little down a little more and then how many months did we spend hearing capitulation?  Housing is and will be the same.  I look for home prices to return to 1980's levels.  That is what economic fundamentals dictate.  JMHO
Jan 30, 2013 1:51PM

Some years I travel  through the Yucatan to take friends to

Tulum and the Mayan ruins at Chicken Pizza.  Mexico is an oil rich country yet has a very large windmill presence.  These are all along the new highway from Cancun to Tulum. Surprising the Liberals aren't all up your butt about the birds they kill.  For most coastal areas with constant onshore breeze these seem to be a stable availalbe resource.  These are very large like Susan says but after you drive by them ten times they just seem to blend in. But we all know how backwards the liberal media tells us Mexico is.  That and their cane sugar while we stupidly consume fructose corn syrup and contribute maasively to childhood obesity.  Hard to believe how many of these so called backward countries seem to be getting more right now than the corrupt politically correct Liberal US.

Jan 30, 2013 1:32PM
So the boob-brained crowd is holding the Dow near zero because Amazon is doing so well. We know the USPS domestic forever stamp rose a penny but overseas shipping rates increased by as mush as 100%. With more than 80% of the globe mired in unemployment rates over 20%, the potential growth is so-so at best. Amazon buyers don't pay taxes which compromises more of the national budget. There will be more and more military budget cuts to accommodate, undermining Southern State employment rates. The more you whine about smaller government, no new taxes and don't recover jobs elsewhere, the more it looks like you will create your own Black Hole and in your lifetime. The WANTED posters for financial pariah won't be job offers. 
Jan 30, 2013 2:08PM

There are two important takeaways here. The first is that the marketplace is still well behind in recognizing the worth of our domestic oil, particularly with the $100 worldwide crude umbrella. The second is that if we had an energy policy in Washington that actually incorporated the domestic oil and bountiful natural gas into its thinking, we could smash OPEC, clean our skies, right our trade balances, become the cheapest place on earth to do business and put millions of people to work doing so.


If Obama and congress don't get this massage on energy, they got to be dumber than a flat rock.

Jan 30, 2013 10:51AM

renewables have merit.  but big oil has the money.  and stupid people think that is just fine until the day they say "gee - why don't we have any natural gas infrastructure"? 


small steps help with things such as solar.  a state congressman in california about 7 years ago got a law passed:  the 1 million solar roof's bill.  all it asked is that new homes design with solar in mind.  ie:  roof angles and location of the electric meter to enable easier hook up later.  certainly many people oppe'd to install solar when they bought their new house. 


meanwhile he fought that bill thru tooth and nail for approval. 


start at home and invest in your own little solar or wind energy system.  the payback is real.  and the piece of mind is sure nice when you get your electric bill.....

Jan 30, 2013 10:40AM
BOILED IN OUR own Oil Investments ??...That's not very nice...
Jan 30, 2013 12:14PM
I think Valero should pass some of the savings using American crude to people using there products!!! We all should benefit from so called cheap American crude.
Jan 30, 2013 11:12AM
The real issue with gasoline are the limited number of refineries and OPEC continually manipulating the price per barrel.  The eastern oil producers must have some sort of agreement because if they wanted to they could sell it for 12 bucks a barrell and destroy any new American alternative production.  The real achilles in our supply are the limited numbers of refinerys.  I think something like 650 world wide.  I think we can all somehow imagine someday soon carbon fuel will be sooo passe. Battery technology would be  a much better investment in my opinion.  JMHO
Jan 30, 2013 11:56AM

Refineries are a major problem...Or a lack of being placed and built..?

With the "newly abundance" of Nat Gas and fracking...Refinery building shoved to back burner.

And of course "Not in My Backyard."


Solar raises it shiny little panels about every 15-20 years, usually when Oil hits "new highs."

I counted many start-ups that came and went in the 70s..During our "Oil Embargo".

Wind power is feasible and I think worth it.....Again many, "not in my backyard."

All or most "Hydro-Electric" dams have been torn out...

Lithium Battery or Electric powered vechicles....Needs many improvements..

And I really doubt that I will be driving a "golf cart" in my lifetime..

Unless I'm playing FLOG..


Jan 30, 2013 3:16PM

The grass might take up arms, along with other weeds..And commit terrorist attacks on the flimsy solar panels....

Then the Sand will get pissed and uproot the weeds and grass, because of the family connections to the solar panels....



Jan 30, 2013 1:45PM
I was always amazed at the stupidity of man when I used to walk into a 50,000 sft building and it was 70 degrees inside just so people could walk around and fondle plastic crap.
What a waste of natural resources!  What a waste of everything, including the energy wasted to make the junk that all eventually ends up in some giant landfill or the ocean somewhere.
I don't know who thought up this plan of consuming everything in site for the sake of collecting useless paper, just to use it to consume more junk.
But it suxs! Whoever is in charge of this world is an idiot.

Jan 30, 2013 12:19PM

Antidil....One thing you mentioned...DEFUNCT Communist type Nations..


Maybe Cuba is next ?? Where are we going to "deport" people we don't agree with ??


Ahhhhh, "The First Amendment"...

Jan 30, 2013 12:23PM

I guess our old friend "Crazy8" is happy and getting his "foretell" of Chesapeake Energy Oil (CHK) going up today....10% pre-market trades, now about 5-6% upside...


The "embattled CEO" Aubrey McClendon is finally leaving....He screwed us on CHK..

And I've been selling some..

Jan 30, 2013 12:32PM

Gold and goldminers up early on, about 15-16 dollars per troy oz...Finally..

Euro pushing on the US Dollar...Oil following, trying for !00 bbl..

Silver moved nicely with Gold also..

Jan 30, 2013 1:24PM

Thank heavens!!  Maybe the government will stop funding the building of thousands of 50 story monstrosities' within 750 feet of property lines.  They are noisy, flashing rotating things as big as half the Empire State building and California says they aren't industrial!!!!


There is no recourse and no payment for loss of property value.


Jan 30, 2013 11:04AM
How sad it is that this V_L guy and his ilk control the White House and the Senate! If only we could deport him and his comrades to their alma maters--Cuba, North Korea, or the now defunct USSR or East Germany.
Jan 30, 2013 10:48AM

DLH.......Wife got a new Chebby almost 2 years ago..She did get some "free" oil changes and tire rotations...Not any more..


And I'm not sure anything is "free."

But we got a lot of discounts, and it was just before, model changes.

Almost year old, but with all warranties and On Star..

Last of it's kind in almost 3 States. Only about 4 others..?

They pretty much paid us to take it...??

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