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What are the Prospects for Valero Energy's Refining Operations?
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Key Takeaways
VLO benefits from cheaper heavy crude and relatively lower input costs as WTI retreats from $100-plus.
Gulf Coast refineries can source low-cost crude from the United States, Canada and Venezuela.
Constrained refining capacity and resilient demand are likely to keep VLO margins strong.
West Texas Intermediate (“WTI”) crude is currently trading above the $90-per-barrel mark, according to data from Oilprice.com. With the commodity price recently declining from more than $100 per barrel, input costs for refiners like Valero Energy Corporation (VLO - Free Report) have reduced relatively. Although oil prices are still high, investors shouldn’t worry, as Valero has a heavy-crude advantage, with heavy crude being cheaper than light crude like WTI.
Regarding the company’s access to diverse crude feedstocks, Valero has an advantage because its Gulf Coast refineries can buy crude oil from many low-cost sources, including the United States, Canada and Venezuela. This gives the company more flexibility to purchase cheaper oil, which helps keep refining costs low and can boost profits when competitors have fewer sourcing options.
Also, 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 likely to remain strong.
Will PSX and PARR Also Gain?
The favorable business environment is also likely to benefit refiners such as Phillips 66 (PSX - Free Report) and Par Pacific Holdings, Inc. (PARR - Free Report) .
On its second-quarter 2026 earnings call, PSX noted that there aren’t enough refineries or products globally right now because much refining capacity is offline and fuel inventories are low. Further, China is exporting less fuel than usual. This shortage helps keep refining margins, also called crack spreads, high. PSX believes these shortages may take longer to resolve than in 2022, which could keep the energy major’s refining profits strong into the September quarter and potentially 2027.
Coming to Par Pacific, the company continued to benefit from a strong refining market at the start of 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, slightly below the second-quarter average of about $33.
VLO’s Price Performance, Valuation & Estimates
Shares of VLO have gained 128.8% over the past year compared with the industry’s growth of 106.2%.
Image Source: Zacks Investment Research
From a valuation standpoint, VLO trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 8.18X. This is above the broader industry average of 5.68X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Valero’s 2026 earnings hasn’t seen any revisions over the past seven days.
View the Zacks #1 Rank List
Image: Bigstock
What are the Prospects for Valero Energy's Refining Operations?
Key Takeaways
West Texas Intermediate (“WTI”) crude is currently trading above the $90-per-barrel mark, according to data from Oilprice.com. With the commodity price recently declining from more than $100 per barrel, input costs for refiners like Valero Energy Corporation (VLO - Free Report) have reduced relatively. Although oil prices are still high, investors shouldn’t worry, as Valero has a heavy-crude advantage, with heavy crude being cheaper than light crude like WTI.
Regarding the company’s access to diverse crude feedstocks, Valero has an advantage because its Gulf Coast refineries can buy crude oil from many low-cost sources, including the United States, Canada and Venezuela. This gives the company more flexibility to purchase cheaper oil, which helps keep refining costs low and can boost profits when competitors have fewer sourcing options.
Also, 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 likely to remain strong.
Will PSX and PARR Also Gain?
The favorable business environment is also likely to benefit refiners such as Phillips 66 (PSX - Free Report) and Par Pacific Holdings, Inc. (PARR - Free Report) .
On its second-quarter 2026 earnings call, PSX noted that there aren’t enough refineries or products globally right now because much refining capacity is offline and fuel inventories are low. Further, China is exporting less fuel than usual. This shortage helps keep refining margins, also called crack spreads, high. PSX believes these shortages may take longer to resolve than in 2022, which could keep the energy major’s refining profits strong into the September quarter and potentially 2027.
Coming to Par Pacific, the company continued to benefit from a strong refining market at the start of 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, slightly below the second-quarter average of about $33.
VLO’s Price Performance, Valuation & Estimates
Shares of VLO have gained 128.8% over the past year compared with the industry’s growth of 106.2%.
From a valuation standpoint, VLO trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 8.18X. This is above the broader industry average of 5.68X.
The Zacks Consensus Estimate for Valero’s 2026 earnings hasn’t seen any revisions over the past seven days.
VLO currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.