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Valero Energy Corporation (VLO)
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Valero Energy named Top Pick at CIti in tighter refining market
Feb. 24, 2021 3:48 PM ETValero Energy Corporation (VLO)By: Carl Surran, SA News Editor3 Comments
Valero Energy (VLO +2.9%) is named Top Pick with a $95 price target at Citi, saying the company offers the best earnings exposure to a tighter refining market caused by the Texas winter storm, which accelerates an already improving 2021 refining outlook.
Also, the "U.S. Energy Transition narrative is speeding up, and the market continues to grossly underprice VLO's clean energy plans," Citi's Prashant Rao writes.
Valero is "the lowest-cost industry operator, with the greatest refining earnings exposure, the largest USGC asset concentration, and the most consistent operating record," according to Rao. "In sum, VLO is best situated to take advantage of the present environment."
J.P. Morgan recently weighed in with a more optimistic outlook for U.S. refineries, rating Valero and Marathon Petroleum as buys.
Sunnier outlook means it's refining's turn to shine, J.P. Morgan says
Feb. 22, 2021 7:44 PM ETValero Energy Corporation (VLO)By: Jason Aycock, SA News Editor
Weighing the latest information from Texas' deep freeze, J.P. Morgan is reflecting on a more optimistic outlook for U.S. refineries - and says it would shift some capital that way, with industry conditions improving.
The firm is raising crack spread forecasts, taking into account not only shorter-term supply disruption impacts from the Texas freeze, but also pent-up demand from the COVID-19 recovery, and longer-term impacts of "permanent U.S. capacity reductions, particularly for gasoline."
Refiners have lagged exploration/production companies during the recovery, "for good reason, until now," the firm says. Downstream has lagged upstream by about 13% since the end of 2019, and the recovery off the bottom has been slower for refining margins than for oil prices.
"Refiners have been hit by the double whammy of weak demand and tight crude diffs caused by OPEC Plus curtailments and shale discipline," the firm says. "However, with demand now improving and OPEC Plus committed to release some barrels back to the market, we think that this should be good for refiners."
Meanwhile, the weight of COVID-19 on near-term mobility should begin to lighten, in part due to vaccine distribution progress. That could make gasoline distribution dynamics "fairly snug" considering capacity reductions.
And diesel margins could take a little longer to recover given knock-on effects of a lagged recovery in demand for jet fuel - though demand has been strong on a combination of shipping-related end markets and cold weather.
Extending its models into 2023, J.P. Morgan sees about 20% total return potential for the sector by the end of the year. (Further out, it says electric vehicle penetration rates will become a headwind, though likely not until at least 2025.)
In terms of individual stocks, the new look has led to shuffled ratings as well. It's staying Overweight on Valero (NYSE:VLO) due to "pure-play GC refining exposure and growing Renewable Diesel business," and it's upgrading Marathon Petroleum (NYSE:MPC) to Overweight as well - "as we like its post-Speedway sale setup, with higher torque to refining, improved spending discipline on capex/opex, a much improved balance sheet and potential for material share buybacks."
A Valero price target boost to $87 from $71 implies 17% upside, while a raise in its Marathon target to $67 from $52 implies 22% upside from current pricing.
It's also upgrading Par Pacific Holdings (NYSE:PARR) to Neutral since it's materially lagged peers so far in 2021.
On the flip side, it's downgrading Phillips 66 (NYSE:PSX) to Neutral, expecting lower-than-consensus earnings this year. And it's staying Neutral on HollyFrontier (NYSE:HFC) due to near-term capex profile.
The firm is also remaining relative Underweight on Delek U.S. Holdings (NYSE:DK) and PBF Energy (NYSE:PBF) due to valuation/leverage profiles.
Outline of MS 2/23/21 Note on refining outlook (actual note too long to post)
"We hosted a webcast with refining experts at Turner, Mason & Co. and had a discussion on their recently published 2021 refining outlook, demand recovery, crude differentials, and the potential for more refinery closures. We offer our 5 key takeaways and a summary of the discussion.
1) The full impact of the Texas freeze is expected to extend beyond the immediate areas affected.
2) Light-heavy differentials expected to widen over the next year.
3) Refinery closures could take a pause this year, but 2022+ could see another surge. (note refers to Chinese teapot refiners -- reasoning not really explained)
4) Robust margins expected over the next couple of years coming out of COVID.
5) Don't see peak demand until beyond 2040…
Contrary to many consultant forecasts, TMC does not see peak demand occurring within the scope of their forecast, which extends out to 2040. They are generally more optimistic than many other analysts, forecasting stronger product demand recovery and longterm growth. That said, they do acknowledge that the pace of demand growth should slow over time.
RBOB cracks rally as USGC refiners see extended outages
Author Chris van Moessner Jordan Blum
Editor James Bambino
Around 1.6 million b/d of USGC refinery capacity remains offline
Operators restart 2.7 million b/d; full ramp up could take weeks
BofA revises 2021 Brent forecast up $10 to $60/b
Gasoline cracks rebounded Feb. 23 as US refiners continued to operate at reduced capacity in the wake of last week's deep freeze.
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Sign Up ICE New York Harbor RBOB crack versus Brent climbed to around $16.16/b in afternoon trading, up from a Feb. 22 close of $15.86/b.
Nearly 2.7 million b/d in refining capacity began restart activities this week, including North America's largest refinery, Motiva Enterprise's 607,000 b/d Port Arthur Refinery.
However, it may take weeks for these plants to return to their pre-storm capacities. Motiva's Port Arthur facility may not be fully operational though until March 11, according to an estimate in a new filing with the Texas Commission on Environmental Quality.
Total said Feb. 23 it is restarting its 225,000 b/d Port Arthur Refinery, but that the process could also drag out until mid-March, according to a new TCEQ filing.
Meanwhile, about 1.6 million b/d in refining output remained down on Feb. 23 without yet restarting, mostly in the Houston area. Some refineries remain only partially operational throughout Texas.
NYMEX March RBOB settled up 1.69 cents at $1.8586/gal and March ULSD climbed 94 points to $1.8680/gal.
Crude futures finished a volatile day mixed as the market searched for its next driver.
NYMEX April WTI settled down 3 cents at $61.67/b while ICE April Brent climbed 13 cents to settle at $65.37/b.
Brent crude prices will average $60/b in 2021, according to latest forecast from Bank of America Global Research released Feb. 23, with temporary price spikes above $70/b possible during the second half of the year. The figure marks an upward revision of $10/b from its previous forecast released in June 2020.
The bullish outlook was supported by advances in COVID-19 vaccine rollouts, OPEC+ supply discipline, and an easing of pandemic lockdowns, the bank said. The Texas deep freeze is likely to reduce global inventories by 50 million barrels, providing additional price support.
The newly bullish outlook helped arrest an early session slide, pulling prices off session lows tested in early US trading. But uncertainty surrounding the restart of US production shut in by recent severe weather capped the rally.
"The deep freeze will impact the US production for a couple of weeks, but if US production comes back a little quicker that could be what is needed to trigger a pullback for WTI crude," OANDA senior market analyst Edward Moya said in a note.
Still, crude forward structures turned more bullish. Year-ahead WTI futures settled at a $5.56/b discount to the front-month contract, while the one-year Brent spread widened to $5.62/b, marking the widest backwardation for both contracts since January 2020.
Thoughts on buying more? I always make my own investment decisions but just looking for some input. I may look to liquidate some tech shares and get more Valero. I feel like now is refiners time to shine. Thanks.
I am staying in VLO for rest of the year and probably into next. Regret selling some of my shares to move into tech. I may buy more for the good yield. Energy will outperform tech this year I'm saying it.
* Valero Energy Corp : Wells Fargo raises price target to $99 from $70
This was a no brainier buy last year at about $50 for me. Just collect the dividend and wait.
I don't plan to sell yet. It is not overpriced at all yet.
Warm summer is here. More travel by cars. Less refineries.
Give me another $25. I may sell at $100.
Valero is the only stock in my watchlist of over 60 stocks that is green. Heavy trading volume, bullish sign I think.
Don't higher oil prices mean lower crack spreads for refiners? That's usually how it goes.
Great move today on strong volume.
I fully anticipate the market to tank and only Oil sees green. Most shares are still more than 50% undervalued.
* Valero Energy Corp : Mizuho raises target price to $86 from $50
Money makers with big dividends. VLO MPC XOM ENB !!!!!!!!!!!!
C just RAISED target on VLO to 95
Well, we're definitely gonna sell more heating oil this quarter.
The storms' impact on gasoline sales should be minor by comparison.
I see $80 by summer.
People will be driving more.
Air travel will be more complicated.
VLO will be loaded with cheap inventory: fatten profits in the first year.
$126.98 all time high will be taken out by the end of the year. $140.00 p/t
100 (in the cards!!) is possible.
Valero Energy Corporation to Participate in Investor Conferences
Valero Energy Corporation (NYSE: VLO, "Valero") announced today that it will be participating in the Credit Suisse Energy Summit on March 2, 2021 and the Morgan Stanley Energy & Power Conference: Innovating for a Sustainable Future on March 3, 2021.
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