We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Why High Oil Prices Won't Fully Derail VLO's Refining Strength
Read MoreHide Full Article
Key Takeaways
Valero Energy could face high crude costs, but tight capacity keeps refining margins strong.
Gasoline, diesel and jet fuel demand stays resilient, supporting busy refineries and VLO's strength.
Marathon Petroleum and Phillips 66 may gain from tight global refining capacity and high utilization.
The Iran-war shock is driving the high crude oil prices, with the price of West Texas Intermediate (“WTI”) crude currently trading at more than the $90-per-barrel mark. The U.S. Energy Information Administration (“EIA”) in its latest short-term energy outlook projected WTI at $85.68 per barrel this year, higher than $65.40 last year. Thus, with oil prices likely to remain elevated, refiners like Valero Energy Corporation (VLO - Free Report) could see pressure on their overall business. However, that does not appear to be the case. Let’s delve deeper.
The global refining capacity is constrained, and fuel inventories are low. On the demand side, gasoline, diesel and jet fuel remain resilient. This means people are still driving and flying quite often, while diesel demand suggests transportation, freight, agriculture and industrial activity are still holding up. As a result, with busy refineries and fuel not in abundant supply, refining margins for refiners like VLO are quite strong.
Thus, surprisingly, with crude prices likely to remain high, investors shouldn’t allocate their money only to exploration and production companies but also to refining players like VLO, even though high crude prices have been increasing refiners’ input costs.
Will MPC & PSX Also Gain?
Marathon Petroleum Corp. (MPC - Free Report) and Phillips 66 (PSX - Free Report) are two other leading refining companies that are well poised to gain from the tight refining capacities across the globe.
MPC runs refining systems that are the largest in the United States. With high utilization of refineries, Marathon Petroleum is well-positioned to capture almost all of the available profitable opportunities.
Phillips 66’s refineries have excellent processing capacity and can handle different grades of crude, and hence can earn a handsome margin after processing low-cost heavy crude. Importantly, PSX expects its refining operations to be responsible for contributing almost 33% of its total adjusted EBITDA by 2027.
VLO’s Price Performance, Valuation & Estimates
Shares of VLO have gained 106.1% over the past year compared with the 61.5% improvement of the industry.
Image Source: Zacks Investment Research
From a valuation standpoint, VLO trades at a trailing 12-month enterprise value to EBITDA of 7.95X. This is above the broader industry average of 5.95X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for VLO’s 2026 earnings has seen upward revisions over the past 30 days.
View the Zacks #1 Rank List
Image: Bigstock
Why High Oil Prices Won't Fully Derail VLO's Refining Strength
Key Takeaways
The Iran-war shock is driving the high crude oil prices, with the price of West Texas Intermediate (“WTI”) crude currently trading at more than the $90-per-barrel mark. The U.S. Energy Information Administration (“EIA”) in its latest short-term energy outlook projected WTI at $85.68 per barrel this year, higher than $65.40 last year. Thus, with oil prices likely to remain elevated, refiners like Valero Energy Corporation (VLO - Free Report) could see pressure on their overall business. However, that does not appear to be the case. Let’s delve deeper.
The global refining capacity is constrained, and fuel inventories are low. On the demand side, gasoline, diesel and jet fuel remain resilient. This means people are still driving and flying quite often, while diesel demand suggests transportation, freight, agriculture and industrial activity are still holding up. As a result, with busy refineries and fuel not in abundant supply, refining margins for refiners like VLO are quite strong.
Thus, surprisingly, with crude prices likely to remain high, investors shouldn’t allocate their money only to exploration and production companies but also to refining players like VLO, even though high crude prices have been increasing refiners’ input costs.
Will MPC & PSX Also Gain?
Marathon Petroleum Corp. (MPC - Free Report) and Phillips 66 (PSX - Free Report) are two other leading refining companies that are well poised to gain from the tight refining capacities across the globe.
MPC runs refining systems that are the largest in the United States. With high utilization of refineries, Marathon Petroleum is well-positioned to capture almost all of the available profitable opportunities.
Phillips 66’s refineries have excellent processing capacity and can handle different grades of crude, and hence can earn a handsome margin after processing low-cost heavy crude. Importantly, PSX expects its refining operations to be responsible for contributing almost 33% of its total adjusted EBITDA by 2027.
VLO’s Price Performance, Valuation & Estimates
Shares of VLO have gained 106.1% over the past year compared with the 61.5% improvement of the industry.
From a valuation standpoint, VLO trades at a trailing 12-month enterprise value to EBITDA of 7.95X. This is above the broader industry average of 5.95X.
The Zacks Consensus Estimate for VLO’s 2026 earnings has seen upward revisions over the past 30 days.
VLO currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.