Oil prices are high and likely to remain high for the foreseeable future. While EIA officials predict a supply glut by 2027, it won't happen for another 12 months or so, if at all.
Over time, the supply appears to be tight. The Iran war disrupted energy markets in historic fashion, not only disrupting production and supply but also disrupting the balance between available and final products. The takeaway is that crack spreads, the difference in input costs and net income for oil refiners, are at historically high levels and are driving strong cash flow for refiners.
More than 100% at an all-time high, the crack spread is hovering in the +100% year-over-year range since mid-year. This situation is not expected to end anytime soon, as oil stockpiles, production, and refining continue to deteriorate. The release of ships from the Persian Gulf is good news, but the oil trapped in the ships is not enough to end the damage. As it is, the world burns more oil than it produces, and in the United States at least, oil output is increasing while oil storage levels continue to decrease.
Globally, demand has shifted from the Persian Gulf and the Middle East to the United States, putting US operators at a disadvantage. Some of that demand will return to its normal sources following the resolution of the Iran War, but not all. In this scenario, US refiners are well positioned to generate cash flow, pay dividends, and aggressively buy back shares.
Valero Energy: A Cash Flow Refiner With Reverse Power
Valero Energy today
Valero Energy
- 52 week interval
- $130.78
▼
$265.61
- Dividend Yield
- 1.99%
- The P/E ratio
- 17.51
- Target Value
- $245.59
Valero Energy NYSE: VLO it's not exactly a pure play, as it works on biodiesel and ethanol, but it's as good as one. Crude refining accounts for about 90% of the business and is the main revenue driver. Its advantage lies in its locations, which are concentrated on the US Gulf Coast.
This allows for quick delivery from key Southwest markets to international buyers. Other advantages include its complex system, which allows for multiple feeds, such as sour crude and WTI, and flexible output to match market needs.
Highlights from the company's Q1 2026 period included better-than-expected revenue growth, earnings growth, and earnings per share (EPS) more than 3000 points above MarketBeat's reported consensus. Cash flow was also significant at $1.3 billion, more than enough to cover capital expenditures. Cash returns included a 6% increase in dividends, yielding 2% on shares near $235, and share buybacks, which reduced the figure by 5%. Looking ahead, the company can continue the strong pace of stock reductions even if the spread of crack decreases. The biggest risk is that the pace of stock reduction is slow.
Sell-side trends are showing support from this vector. Analysts, who drive both institutional and retail sentiment, have increased coverage, reinforced the Neutral Buy rating, and raised their price targets this year. The consensus of 21 views the market as fair value near $235, but the trend is up, leading to the $290 range and a new high within the next 12 months. Institutions, the visible action dictated by analysts' trends, are relatively active, and own about 80% of the stock and are buying at a faster pace than $2-to-$1 this year.
Marathon Petroleum: Scale and Diversity
Marathon Petroleum Today
Marathon Petroleum
- 52 week interval
- $158.00
▼
$272.46
- Dividend Yield
- 1.64%
- The P/E ratio
- 15.92
- Target Value
- $272.94
Marathon Petroleum NYSE: MPC is the largest independent US refiner, operating in the Midwest and Southwest. Its diversified business includes pipelines that connect important oil fields along the Gulf Coast. Among its highlights is a systematic approach to capital allocation that allows for balance sheet strength, business reinvestment, and capital return.
Data from the company's Q1 release included better-than-expected growth and margin windfall. Adjusted EPS doubled the consensus forecast, reversing the loss posted in the year-ago quarter.
The lowest rate of shares of Marathon Petroleum Corporation is approximately 1.5%. The payout is reliable at around 25% of the income forecast, and is supported by share buybacks. Stock buybacks are strong, reducing the number by 5.7% on average over the next 12 months. Sell-side support is also strong, with 19 analysts rating it as a Moderate Buy consensus, a double-digit consensus forecast, bullish price targets, and accumulating institutions.
Phillips 66: Dividends, Distribution Growth, and Share Buybacks
Phillips 66 Today
- 52 week interval
- $118.00
▼
$190.61
- Dividend Yield
- 3.03%
- The P/E ratio
- 16.54
- Target Value
- $192.33
Phillips 66 NYSE: PSX is another diversified operator with a business focus on refining. Nearby segments include chemicals, pipelines, natural gas, and retail. Key details include its group-leading dividend yield of around 3%, increasing distribution volume, and share buybacks.
PSX's purchases are not as aggressive as others, but they provide strength, reducing the number by an average of 1.46% in the 12 consecutive months from Q1. Looking ahead, growth is expected to be supported by demand and expansion plans.
Analyst trends are strong, including widening spreads, strengthening sentiment, and a moderate buy consensus among the 22 stocks tracked by MarketBeat. They predict a double-digit rise in the target area, which is enough to reach the highest level. The risks of PSX and other refiners include the ability to reduce crack propagation. However, with spreads at historic highs, the industry can withstand the impact and end up making a long-term return on its investment in the future.
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