Holly Corp., CVR Energy Inc. and other refiners that posted record first-quarter profits by processing the cheapest types of crude are facing shrinking margins thanks to the U.S. government's entry into the oil market.

The Energy Department will make 1 million barrels of stockpiled crude available daily as part of an effort by International Energy Agency member nations to replace high-value Libyan oil cut off amid that nation's civil war. Since the plan was announced on June 22, the profit earned from processing crude into fuels has fallen 16 percent, based on New York energy futures contracts.

Holly, CVR and Western Refining Inc. have enjoyed rising profits as the spread widened between prices for the Texas crude they process and Brent, the North Sea oil that serves as a benchmark in gasoline and diesel markets. The refiners' shares surged more than 60 percent in the six months preceding last week's stockpile announcement, almost 10 times the 6.5 percent increase posted by an index of major oil companies that includes Exxon Mobil Corp. and BP Plc.

"Refiners who've been benefiting from this spread are going to see it begin to close and that's going to diminish profits," said Blake Fernandez, an energy analyst at Howard Weil in New Orleans.

Brent oil futures tumbled as much as $8.49 a barrel, or 7.4 percent, after the Paris-based IEA disclosed plans for a coordinated release of emergency oil stockpiles by its 28 member nations. A Standard & Poor's index of some of the world's biggest energy producers, including Chevron Corp. and Exxon, dropped the most in more than a year in the first 45 minutes after the announcement.

Eoin Treacy's view US refiners suffered more than most energy related companies during the bear market and were some of the slowest to complete base formations. This week's announcement from the IEA will have a knock-on effect for some but if the initial response is reliable, the outlook for the sector leaders remains positive. I last performed a review of some of the relevant shares in Comment of the Day on January 12th.

Holly Corp, Frontier Oil Corp and CVR Energy all began to rally from Q3 last year and had become quite overextended relative to their respective 200-day MAs by February. They then began a process of reversion characterised by a ranging consolidation. They all encountered at least short-term selling pressure at the upper side of their ranges last week but would need to sustain moves below $52, $25 and $18 respectively to question the consistency of their medium-term uptrends. Delek US Holdings has a relatively similar pattern.

Western Refining surmounted its 2009 peak in February and has been ranging mostly above $14 since. A sustained move below that level would be required to begin to question medium-term scope for additional upside.

Tesoro Corp, Sunoco, Valero and Alon USA Energy have all closed overextensions relative to their 200-day MAs but will need to break their respective three-month progressions of lower rally highs to confirm the return of demand dominance.