What’s Driving Insider Buying Among Oil Refiners?

We get asked all the time: How do ideas make their way into our portfolio? While our 10 Principles of Value Investing™ inform our security selection decisions, insider buying is a tried-and-true screen that can confirm our beliefs or offer clues on new areas of interest. If the management team within a business is buying the company’s shares, it could suggest that valuations are particularly attractive or that fundamentals are about to improve. 

Recently, we have been seeing insider buying activity pick up in the Energy sector — namely among U.S. oil refiners. This isn’t surprising. Since the election, there has been a good deal of discussion that the incoming Trump administration will advocate for a more friendly regulatory environment for fossil fuel production. When oil production increases, it’s often a tailwind for this group of stocks because refiners will have more feedstock to convert into gasoline, diesel, and jet fuel. As the chart below shows, there has been a strong historic relationship between the relative performance of refiner stocks and U.S. oil production.  

Source: FactSet Research Systems Inc., Monthly data 12/15/2009 to 10/15/2024. The data in this chart represents the US Oil Production per day versus the Refiners Total Return relative to Energy. MBPD refers to Million Barrels per Day. All indices are unmanaged. It is not possible to invest in an index. Past performance does not guarantee future results.

President Trump’s nominee for Treasury Secretary, Scott Bessent, has openly discussed what he calls his “3-3-3” economic plan, which involves increasing Gross Domestic Product growth to 3%, cutting the budget deficit to 3% of GDP, and boosting U.S. energy production by the equivalent of 3 million barrels of oil per day. Even if that energy target isn’t met, a modest increase could at least prolong the general trend of accelerating production in U.S. oil to the highest level that refiners have enjoyed over the past 15 years.

Source: FactSet Research Systems Inc. and U.S. Energy Information Administration, Monthly data 1/15/1920 to 10/15/2024. The data in this chart represents the US Oil Production per day over time. MBPD refers to Million Barrels per Day. All indices are unmanaged. It is not possible to invest in an index. Past performance does not guarantee future results.

Of course, insider buying and increased oil production aren’t enough to justify adding refiner exposure to our portfolio. We would only consider adding refiners that also meet our 10 Principles of Value Investing™, which emphasize financially sound, well-managed companies with attractive valuations that we expect can grow throughout market cycles.