Lasting Energy Chokeholds Present Buy Opportunities Across Energy Sector

**SPEAKER_1** (0:00)
Do you want to shift gears here and take a closer look at the energy sector? Bring Sam back into the conversation and welcome in our next guest. Joining us, Rob Thummel, the Senior Portfolio Manager over at Tortoise Capital. Rob, great to have you back on the show.
Let's start a big picture here. How much has this prolonged conflict with Iran fundamentally changed the global energy market?

**Rob Thummel** (0:22)
Yeah, I think it's had a huge impact, right? I think what the world's figured out is that energy is pretty important, energy security is pretty important, and specifically, maybe a little bit more specifically, is that we have actually seen inventories deplete for crude oil, for refined products, gasoline, diesel, and jet fuel, and so all those need to be refilled. So as a result of that, you've got some pretty wide margins now. We're finding margins basically that are being captured by some but not all refiners.

**Sam** (0:54)
Rob, I'm just wondering record high crack spreads, how that has been factoring in or changing the investment thesis? I mean, do you go all downstream now and sort of try to capitalize on that refining with the higher prices or do you stay upstream with the oil majors and stay diversified?

**Rob Thummel** (1:12)
Yeah, for us here at Tortoise, we made that switch, Sam, back in February when actually when Maduro was captured, we saw Venezuela as an opportunity for more heavy oil to come to the US, which meant that US refiners were basically going to be able to expand their margins and that's exactly what has happened. Now we've seen, obviously, refined product margins widen even more and so companies like, or refiners like Valero and Marathon Petroleum and Phillips 66 have all, over the last couple of quarters, just seen a massive amount of free cash flow generated and a lot of that's been paid back to shareholders in the form of share buybacks and or higher dividends.

**SPEAKER_1** (1:54)
These refiners and capacity being so tight globally, how high can the refining margins really go and how much of that upside is already reflected in these stocks and more specifically, which names do you like here?

**Rob Thummel** (2:08)
Yeah. Well, I think you're going to continue to see as long as refined product demand continues to be there, and I think that's what people thought we might see a little bit of a slowdown in demand, demand destruction. I don't know if we've really seen any of that at all. In fact, what we've seen is companies like Valero actually are benefiting from refined product exports as well as the higher crack spreads that Sam was talking about earlier. And so the names to like aren't like a Valero. That's one of the names we like here at Tortoise. We also like Marathon Petroleum as well.
But both of the stocks, as you highlight, have done really well. They've done really well over just the last, well, really over the last year, over the last couple of years. However, we still think that there's opportunities to make money in the refining trade. We still think that you're going to continue to see demand for gasoline, diesel and jet fuel continue to rise even as, you know, as oil prices have increased.
The economies, if they're going to continue to run both domestically and globally, you're going to need all of these refined products. And so there's still an opportunity for that. And as a result, we would still suggest that investors really look at the energy sector in general, but also the refining sector in particular for some opportunities.

**Sam** (3:23)
But Rob, this has had an incredible run this year. I mean, it's really been an outperforming sector. If there's still money to be made here, I mean, is it too late to get in? Would you have to wait for a pullback or does it not matter?

**Rob Thummel** (3:36)
I don't think you have to wait for a pullback. Now, obviously, if there's some sign of global economic slowdown or some potential truce, I guess, in the Middle East, if you've been waiting for that, and some investors are waiting for that, and that's a fair representation to make, but obviously, it doesn't appear as happening anytime soon. And so, I think, in the meantime, I guess, if you didn't get involved in the energy sector at all this year, you've lost out on some returns and you're lagging because if you're still waiting for a peace deal, it's probably going to be a little while yet.

**SPEAKER_1** (4:17)
And Rob, how are you looking at liquefied natural gas? I mean, when this first all started, we were talking about LNG so much, I feel as though we've moved back our focus to talking about oil prices quite a bit. But is there still opportunity here in LNG?