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Phillips 66: Refining Upside Backed by Stable Midstream Operations
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Key Takeaways
Phillips 66 benefits from strong fuel demand and tight inventories despite elevated crude input costs.
PSX's midstream operations provide stable cash flows and reduce exposure to commodity price volatility.
PSX shares rose 82.3% in the past year, while its 2026 earnings estimate was revised upward.
With West Texas Intermediate (WTI) oil prices currently above $80 per barrel, according to data from Oilprice.com, owing to the conflicts in the Middle East, the overall energy business is uncertain.
The U.S. Energy Information Administration (“EIA”) projects the spot average West Texas Intermediate price for 2026 at $80.88 per barrel, higher than $65.40 per barrel in 2025. Thus, Phillips 66 (PSX - Free Report) , which generates significant margin from its refining activities, is likely to be hurt by high oil prices. Despite the high input cost, the refining business environment is highly profitable as demand for fuels remained strong, while global fuel inventories stayed relatively tight.
Investors should also know that although a leading refiner, PSX, unlike most of its refining peers, has diversified its business across midstream and chemicals. Along with investing in refining operations, Phillips 66 is allocating a significant amount of capital to midstream.
Midstream business, by its very definition, is stable since it generates stable cash flows as the assets are being utilized by shippers for the long term, and is less vulnerable to commodity price volatility. Hence, having a diversified business model, Phillips 66 is insulated from commodity price volatility to a great extent.
DINO & PARR Also Poised to Gain
HF Sinclair (DINO - Free Report) and Par Pacific Holdings Inc. (PARR - Free Report) , two other well-known refiners, are also likely to benefit from the ongoing favorable refining business.
On its second-quarter 2026 call,HF Sinclair mentioned that wars in the Middle East and Ukraine have disrupted refining capacities. DINO stated that inventories of fuel in the United States and in its key operating regions are low, especially when the demand for the end products remains healthy, thereby creating opportunities to earn healthy refining margins.
Par Pacific continued to benefit from a strong refining market as it entered the third quarter. Its refining index, which is a rough measure of how profitable it is to turn crude oil into products like gasoline and diesel, was still very high in July at $31.34 per barrel, only slightly below the second-quarter average of about $33.
Demand for fuels remained strong, especially on the mainland, while global fuel inventories stayed relatively tight. In simple terms, there was still healthy demand for refined products and limited excess supply, which helped PARR continue earning attractive margins from its refineries.
PSX’s Price Performance, Valuation & Estimates
Shares of PSX have gained 82.3% over the past year compared with the 101.4% rise of the composite stocks belonging to the industry.
Image Source: Zacks Investment Research
From a valuation standpoint, PSX trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 10.89X. This is above the broader industry average of 5.32X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for PSX’s 2026 earnings has seen upward revisions over the past 30 days.
View the Zacks #1 Rank List
Image: Bigstock
Phillips 66: Refining Upside Backed by Stable Midstream Operations
Key Takeaways
With West Texas Intermediate (WTI) oil prices currently above $80 per barrel, according to data from Oilprice.com, owing to the conflicts in the Middle East, the overall energy business is uncertain.
The U.S. Energy Information Administration (“EIA”) projects the spot average West Texas Intermediate price for 2026 at $80.88 per barrel, higher than $65.40 per barrel in 2025. Thus, Phillips 66 (PSX - Free Report) , which generates significant margin from its refining activities, is likely to be hurt by high oil prices. Despite the high input cost, the refining business environment is highly profitable as demand for fuels remained strong, while global fuel inventories stayed relatively tight.
Investors should also know that although a leading refiner, PSX, unlike most of its refining peers, has diversified its business across midstream and chemicals. Along with investing in refining operations, Phillips 66 is allocating a significant amount of capital to midstream.
Midstream business, by its very definition, is stable since it generates stable cash flows as the assets are being utilized by shippers for the long term, and is less vulnerable to commodity price volatility. Hence, having a diversified business model, Phillips 66 is insulated from commodity price volatility to a great extent.
DINO & PARR Also Poised to Gain
HF Sinclair (DINO - Free Report) and Par Pacific Holdings Inc. (PARR - Free Report) , two other well-known refiners, are also likely to benefit from the ongoing favorable refining business.
On its second-quarter 2026 call,HF Sinclair mentioned that wars in the Middle East and Ukraine have disrupted refining capacities. DINO stated that inventories of fuel in the United States and in its key operating regions are low, especially when the demand for the end products remains healthy, thereby creating opportunities to earn healthy refining margins.
Par Pacific continued to benefit from a strong refining market as it entered the third quarter. Its refining index, which is a rough measure of how profitable it is to turn crude oil into products like gasoline and diesel, was still very high in July at $31.34 per barrel, only slightly below the second-quarter average of about $33.
Demand for fuels remained strong, especially on the mainland, while global fuel inventories stayed relatively tight. In simple terms, there was still healthy demand for refined products and limited excess supply, which helped PARR continue earning attractive margins from its refineries.
PSX’s Price Performance, Valuation & Estimates
Shares of PSX have gained 82.3% over the past year compared with the 101.4% rise of the composite stocks belonging to the industry.
From a valuation standpoint, PSX trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 10.89X. This is above the broader industry average of 5.32X.
The Zacks Consensus Estimate for PSX’s 2026 earnings has seen upward revisions over the past 30 days.
Phillips 66 currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.