Morgan Stanley | Global refinery margins have fallen sharply this year and we think we are going to see a rebound in 2020 for a host of reasons: the price of HSFO has fallen to a level where it already competes in power generation, which limits its fall from these levels.
The fuels that are used to comply with IMO 2020 are seeing a strong increase in demand and the refineries that produce them will experience their benefits, this is difficult to observe since they are not included in the benchmarks. The most complex refiners will benefit in the mix.
With the global macro stabilizing and the demand for distilled product increasing refineries with exposure to this product should start to benefit. If margins bounce higher by 2020, this would represent a clear positive for one of our top picks in the sector: Repsol (OW, 18 euros).
Repsol, Overweight, Target Price 18 euros.