We were asked in last week’s chat about shorting the refiners, and whether we “believed” in shorting anything.

Shorting the right stock at the right time can certainly be profitable, though betting against equities is a harder discipline and a riskier proposition than owning them.

As for the refiners, after purging almost all of our refining recommendations from the portfolios last month, I did recently write up a case for shorting them … for a new short-term trading service we haven’t yet launched. I’ll share that case here after a short digression.

This newsletter has done well over the years by making patient, long-term recommendations and we won’t be departing from that track record just because the energy sector is going through one of its periodic slumps.

At the same time, in the course of our research we frequently come across short-term opportunities and dislocations that aren’t a good fit for our portfolios but may still be of value to readers interested in speculation.

In the past, we’d just move on. Instead, we’ll soon sharing some of these ideas as part of our new Energy Trader service. It’s not meant for conservative investors, and we’d hate for it to drag anyone into gambles outside their comfort zone. On the other hand, we know some of our subscribers welcome risk and the outsized rewards that sometimes accompany it.

Now on to the refiners, a sector spoiled of late by fat margins and strong demand as a direct result of low crude prices.

Over the last several years, U.S. refiners have benefited from several unusual tailwinds. The shale revolution provided discounted crude feedstock and cheap natural gas, burned to process crude into higher-value fuels.

The growing cost advantage of U.S. refiners over European rivals and chronic underinvestment in refining capacity in Central and South America powered a boom in fuel exports.

Meanwhile, a flood of income-seeking capital invested in master limited partnerships set up to own the refiners’ pipelines and terminals at higher valuations than the industry has ever seen before.

And the plunge in oil prices over the last year has revived long-stagnant domestic fuel demand.

But now several of these trends look tired all at once.  Refining margins have already pulled back from record highs and could compress further. Refining stocks, which have been the energy sector’s shining stars for several years now, have a long way to fall if this cyclical industry goes through one of its periodic and overdue downturns.

The spread between domestic and foreign crude has already been much reduced as shale output flattens out while foreign producers pump all they can in an attempt to extract the most revenue.

In addition, new refineries have come on line recently in the Middle East and Asia, increasing global capacity above the pace of growth in demand. Domestic demand growth is unlikely to persist as Americans keep buying newer and on the whole more fuel efficient cars. And when crude prices rebound, as they inevitably will, the domestic revival could sour quickly, even as costlier crude exerts a margin squeeze.

Short sales of pure-play refiners Valero (NYSE: VLO) and Marathon Petroleum (NYSE: MPC) are likely to do well over the next three to four months. These companies are less likely to be targeted in industry consolidation than smaller rivals.

Aggressive option speculators should consider Jan. 15 VLO $65 Puts below $5.50 and Jan. 15 MPC $55 puts below $6.50.