In this issue:

When your suppliers are desperate and customers flush, that’s when you can really make some money. Which certainly describes the happy place U.S. refiners currently occupy, between a glut of discounted domestic crude and customers using more fuel in response to the recently lowered prices.

Of course, the rise in the industry’s margins won’t last — it never does in cyclical commodity businesses. But it could persist for quite a while. That’s because crude drillers foreign and domestic have merely slowed the rate of production growth so far, eschewing the more painful cuts needed to actually bring their output down, for the most part.

As a result, refining stocks should continue to run as springtime maintenance and a steelworkers’ strike limit near-term production. The first article in the issue examines the market fundamentals that now dictate Buy ratings on the six refiner picks already in our portfolios as well as two more added this month.

Next we examine the longer-term reasons for the industry’s recent success and its leading operators’ strong fourth-quarter results.

Finally, we analyze the recent decision by leading shale driller EOG Resources (NYSE: EOG) to suspend output growth, and contrast the cuts and productivity improvements recently made by U.S. producers with the continuing spending largesse of their arch-rival Saudi Arabia.

It won’t take much of a rebound in oil prices to get EOG growing again, because the efficiency improvements it’s making in the meantime keep lowering the price of crude it needs to generate an acceptable rate of return.

Meanwhile, while Saudi Arabia is not in danger of going bust any time soon, other members of the Organization of Petroleum Exporting Countries aren’t as fortunate. Libya, Nigeria, Venezuela and Iraq all look like candidates to fail as states, and the disorder they’re already enduring makes their crude an expensive alternative to U.S. shale production.

That’s why, while refiners are enjoying favorable market tailwinds at the moment, EOG remains our #1 Best Buy below $100. We don’t expect much from the stock in the very near term. But over the next year or so the quality of its resource base and management should win out.

Portfolio Update

• Alon USA Energy (NYSE: ALJ) added to Aggressive Portfolio; buy below $16

• Delek Holdings (NYSE: DK) added to Growth Portfolio; buy below $44

• Western Refining (NYSE: WNR) moved to Growth Portfolio and upgraded to buy below $57

• Valero Energy (NYSE: VLO) upgraded to Buy below $70 in Growth Portfolio

• Marathon Petroleum (NYSE: MPC) upgraded to Buy below $118 in Growth Portfolio

• Tesoro (NYSE: TSO) upgraded to Buy below $105 in Growth Portfolio

• HollyFrontier (NYSE: HFC) upgraded to Buy below $50 in Growth Portfolio

Commodity Update

West Texas Intermediate (WTI) prices weakened over the past two weeks before rallying on Friday. Nevertheless, the price since our last report fell to $49.76 per barrel (bbl), down $2.88/bbl from our previous issue. Concerns over Libya, however, continued to push up Brent prices, which were up another $1.22/bbl to $62.88/bbl. The Brent-WTI spread has now widened to $12.82/bbl. Natural gas prices pulled back to $2.73 per million British thermal units, down $0.12/MMBtu since our last issue. I see no near-term drivers that are likely to significantly increase natural gas prices.

In Other News

• A CSX (NYSE: CSX) train carrying Bakken crude from North Dakota’s shale oil fields to the coast of Virginia derailed and caught fire

• EOG Resources (NYSE: EOG) slashed its 2015 budget following Q4 2015 results that fell far short of analysts’ expectations

• BP (NYSE: BP) lost another legal battle to reduce the maximum fine it could face from the 2010 Gulf of Mexico oil spill, leaving it liable for up to $13.7 billion under the federal Clean Water Act    

• The largest U.S. refinery strike in 35 years is now affecting 12 refineries and 20% of U.S. refining capacity

• Despite the sharp decline in oil prices over the past six months, oil production in the Bakken and Eagle Ford increased by 33% from a year ago

• As expected, President Obama vetoed a bill that would have approved the Keystone XL pipeline

• Shale oil producers have cuts costs so deeply that several CEOs warned that production could begin to fall much earlier than expected