Moody's Investors Service lowered its outlook on the oil refining sector to ''stable'' from ''positive,'' citing demand that may lag capacity over the next 12-18 months. A ''stable'' rating implies the rating agency does not expect a significant change one way or the other in business conditions for up to 18 months.
Global demand for oil is expected to increase by 1.6 million barrels per day next, but Moody's notes refining capacity is expected to expand by 2.4 million barrels per day. Among the challenges facing the sector are higher prices for oil, gasoline and distillates, sluggish economies in the U.S. and Europe and China's inflation-fighting efforts, the Associated Press reported, citing Moody's.
The ratings agency is bullish on refiners with exposure to the U.S. Midwest due to favorable margins in the region. Those companies include Marathon Petroleum (MPC), CVR Energy (CVI) and HollyFrontier (HFC).
Moody's said refining margins could come under pressure as soon as early 2012 if demand does not start to catch up with capacity.