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3 Oil Refining Stocks at All-Time Highs: Should You Buy?
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Three refining companies that may be catching investors' attention in the Oil/Energy space are Valero Energy (VLO - Free Report) , Marathon Petroleum (MPC - Free Report) and Phillips 66 (PSX - Free Report) . As a matter of fact, the stocks again made headlines on Wednesday after reaching fresh highs.
VLO, MPC and PSX climbed to their all-time highs of $182.73, $218.59 and $173.55, respectively. On the day, each of them saw their share price increase about 2%. This jump marks a year-to-date ascent of somewhere between 30% and 45% for the operators.
What Are the Reasons Behind the Rally?
Obviously, the recent rise in oil prices has played a key role in the abovementioned companies' surge. That's a big boon for VLO, MPC and PSX, given that it drives prices at the pumps.
Oil prices rallied in the first quarter of 2024, with both Brent and West Texas Intermediate (“WTI”) crude futures registering significant increases. Brent oil, the global benchmark, rose nearly 14%, while WTI, which tracks U.S. crude, surged approximately 16% during the quarter. As of now, the global benchmark settled at $87.48 per barrel, while U.S. crude closed at $83.17 a barrel.
Several factors contributed to the uptrend in oil prices. One significant driver was the ongoing production cut by major oil-producing nations, including Russia and members of the OPEC cartel. These cuts helped tighten the supply-demand dynamics in the market, leading to a reduction in global oil inventories.
Since 2022, OPEC+ countries, led by Saudi Arabia and Russia, have implemented various production cuts to support oil prices as the market grapples with rising U.S. production and sluggish global demand. The latest round of voluntary cuts, which began in January, aimed to reduce combined production targets by approximately 2.2 million barrels per day (bpd).
Last month, Saudi Arabia confirmed the decision to extend the voluntary cuts until the end of June. In a surprising move, Russia announced an additional voluntary cut of 471,000 bpd for the second quarter. This decision, along with the commitment from other key producers like Iraq and the UAE to extend their cuts, underscores the collective effort to stabilize oil markets.
Geopolitical tensions also played a role in supporting oil prices. Escalating conflicts, such as the Russia-Ukraine war and the Israel-Palestine conflict, raised concerns about potential supply disruptions in key oil-producing regions. Additionally, attacks on ships in the Red Sea further heightened market anxieties, contributing to the bullish sentiment.
Marathon Petroleum and other downstream operators also benefited from the surge in gasoline prices, as U.S. refiners completed planned maintenance activities. As a result, domestic refinery utilization rates have remained below 90% for an extended period, marking the longest duration of such low utilization in three years.
Image Source: Zacks Investment Research
Solid Results, Strong Industry
Continuing the ascension of of Valero Energy, Marathon Petroleum and Phillips 66 shares were their favorable fourth-quarter results that widely surpassed the bottom-line expectations during the period.
VLO’s Q4 earnings of $3.55 per share breezed past the Zacks Consensus Estimate of $2.95 a share by 20%. Similarly, MPC easily surpassed Q4 earnings expectations, with EPS at $3.98 per share and 69% above estimates of $2.36 a share. Meanwhile, quarterly EPS of $3.09 topped estimates by 30%.
VLO, MPC and PSX stocks are part of the Zacks Oil and Gas - Refining & Marketing industry group, which ranks in the top 38% out of more than 250 Zacks Ranked Industries. This group has widely outperformed the market over the last three years.
Final Words
From all indications, refining and marketing companies seem to be well-placed for the foreseeable future. The general macroeconomic landscape remains positive, with consistent demand for their products and clear visibility of cash flow.
However, there are emerging inflationary worries, and certain companies in this sector might face growth slowdowns due to broader economic challenges. Consequently, it would be advisable to wait for a more opportune moment before investors consider buying in. Valero Energy, Marathon Petroleum and Phillips 66 presently hold a Zacks Rank #3 (Hold) each.
Image: Bigstock
3 Oil Refining Stocks at All-Time Highs: Should You Buy?
Three refining companies that may be catching investors' attention in the Oil/Energy space are Valero Energy (VLO - Free Report) , Marathon Petroleum (MPC - Free Report) and Phillips 66 (PSX - Free Report) . As a matter of fact, the stocks again made headlines on Wednesday after reaching fresh highs.
VLO, MPC and PSX climbed to their all-time highs of $182.73, $218.59 and $173.55, respectively. On the day, each of them saw their share price increase about 2%. This jump marks a year-to-date ascent of somewhere between 30% and 45% for the operators.
What Are the Reasons Behind the Rally?
Obviously, the recent rise in oil prices has played a key role in the abovementioned companies' surge. That's a big boon for VLO, MPC and PSX, given that it drives prices at the pumps.
Oil prices rallied in the first quarter of 2024, with both Brent and West Texas Intermediate (“WTI”) crude futures registering significant increases. Brent oil, the global benchmark, rose nearly 14%, while WTI, which tracks U.S. crude, surged approximately 16% during the quarter. As of now, the global benchmark settled at $87.48 per barrel, while U.S. crude closed at $83.17 a barrel.
Several factors contributed to the uptrend in oil prices. One significant driver was the ongoing production cut by major oil-producing nations, including Russia and members of the OPEC cartel. These cuts helped tighten the supply-demand dynamics in the market, leading to a reduction in global oil inventories.
Since 2022, OPEC+ countries, led by Saudi Arabia and Russia, have implemented various production cuts to support oil prices as the market grapples with rising U.S. production and sluggish global demand. The latest round of voluntary cuts, which began in January, aimed to reduce combined production targets by approximately 2.2 million barrels per day (bpd).
Last month, Saudi Arabia confirmed the decision to extend the voluntary cuts until the end of June. In a surprising move, Russia announced an additional voluntary cut of 471,000 bpd for the second quarter. This decision, along with the commitment from other key producers like Iraq and the UAE to extend their cuts, underscores the collective effort to stabilize oil markets.
Geopolitical tensions also played a role in supporting oil prices. Escalating conflicts, such as the Russia-Ukraine war and the Israel-Palestine conflict, raised concerns about potential supply disruptions in key oil-producing regions. Additionally, attacks on ships in the Red Sea further heightened market anxieties, contributing to the bullish sentiment.
Marathon Petroleum and other downstream operators also benefited from the surge in gasoline prices, as U.S. refiners completed planned maintenance activities. As a result, domestic refinery utilization rates have remained below 90% for an extended period, marking the longest duration of such low utilization in three years.
Image Source: Zacks Investment Research
Solid Results, Strong Industry
Continuing the ascension of of Valero Energy, Marathon Petroleum and Phillips 66 shares were their favorable fourth-quarter results that widely surpassed the bottom-line expectations during the period.
VLO’s Q4 earnings of $3.55 per share breezed past the Zacks Consensus Estimate of $2.95 a share by 20%. Similarly, MPC easily surpassed Q4 earnings expectations, with EPS at $3.98 per share and 69% above estimates of $2.36 a share. Meanwhile, quarterly EPS of $3.09 topped estimates by 30%.
VLO, MPC and PSX stocks are part of the Zacks Oil and Gas - Refining & Marketing industry group, which ranks in the top 38% out of more than 250 Zacks Ranked Industries. This group has widely outperformed the market over the last three years.
Final Words
From all indications, refining and marketing companies seem to be well-placed for the foreseeable future. The general macroeconomic landscape remains positive, with consistent demand for their products and clear visibility of cash flow.
However, there are emerging inflationary worries, and certain companies in this sector might face growth slowdowns due to broader economic challenges. Consequently, it would be advisable to wait for a more opportune moment before investors consider buying in. Valero Energy, Marathon Petroleum and Phillips 66 presently hold a Zacks Rank #3 (Hold) each.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.