Diesel prices are closing in on their 2022 record as the Iran conflict knocks global refining capacity offline. Hedge funds are responding by loading up on pipeline operators, with Williams the most widely held energy stock among major funds last quarter.
Diesel is getting more expensive by the week. AAA puts the national average at $5.47 a gallon. Parts of California are paying as much as $7 a gallon. Nationally, diesel is closing in on its nominal record high of $5.81, set in June 2022.
Refining capacity comes offline
The Iran conflict and Russia's war on Ukraine are contributing to the higher prices because a chunk of global refining capacity is now offline. As a result, diesel and jet fuel inventories fell by a half million barrels last week, according to Piper Sandler — a period when they would normally hold flat or even build ahead of fall.
California adds its own squeeze. Beyond gasoline taxes that add over 70 cents to every gallon, the state has lost two refineries in the past year and now leans on imports to meet demand. A proposed pipeline called Western Gateway, backed by Phillips 66, H.F. Sinclair and Kinder Morgan, could eventually ease that shortfall, but the earliest completion date is 2029.
Hedge funds bet on pipelines
Against that backdrop, hedge funds are concentrating their energy bets on pipeline operators. Filings show Williams is the most owned energy stock among major hedge funds for the prior quarter, followed by Chevron and another pipeline name, Energy Transfer. Devon Energy, Antero Resources and Expand Energy round out the top six.
Elsewhere in the sector, Targa Resources signed a 20-year supply agreement with ExxonMobil tied to Exxon's build-out in the Permian Basin. Smaller names such as Solaris Energy Infrastructure and ProPetro also drew hedge fund interest, with analysts placing Solaris 65% below its $95.52 price target.
Source: CNBC
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