Refining Margins Boost Israeli Refinery Stocks Despite Operational Challenges
Israeli oil refineries have experienced a significant surge in stock prices this year, driven primarily by a sharp increase in refining margins, the difference between crude oil costs and the prices of refined products like gasoline, diesel, and jet fuel. Despite facing severe operational setbacks, including missile attacks on Bazan's Haifa refinery that caused fatalities and shutdowns, and a major equipment failure and fatal accident at Baza's Ashdod refinery, both companies have seen their market values double since the start of the year.
Bazan's stock jumped nearly 40% recently, reaching a market capitalization of 6.3 billion shekels, while Baza's shares rose about 35% to a valuation of 1.5 billion shekels. The refining margin increase is attributed to geopolitical tensions impacting production capacity in Russia and the Persian Gulf, as well as heightened military activity raising demand for jet fuel and diesel. For example, jet fuel prices rose 54% in a month, outpacing the 34% increase in Brent crude oil prices.
The global market is also experiencing a shortage of refined products due to reduced exports from the Persian Gulf and export restrictions imposed by China to prioritize domestic needs. Bazan currently reports a diesel refining margin of about $80 per barrel, nearly four times higher than at the start of the year, and gasoline margins have more than doubled.
Major shareholders benefiting from this rally include the Petrochemicals Group, controlling 25% of Bazan, and hedge fund Community, led by Jeremy Blank, which owns about 7% of Bazan. In Baza, controlled by real estate company Summit and businessman Zohar Levy, holdings have also appreciated significantly. However, infrastructure investor Shapir, which acquired 10% of Baza in 2023, has yet to realize gains.
Both refineries continue to recover from operational disruptions. Bazan's CEO Rafael Maman expects insurance and government aid to cover most damages from missile strikes. Baza recently appointed a new CEO, Yogev Gabry, aiming to overcome recent challenges and capitalize on favorable refining margins going forward.
