Refining margins are unlikely to return to pre-conflict levels anytime soon, even if the Strait of Hormuz reopens, due to refinery damage, the time required to normalize trade flows, and the need to rebuild inventories, Morgan Stanley analysts said in a Friday note to clients.

Analysts said first-quarter financial results for refining companies will be pressured by lower capture rates amid still-tight crude differentials, planned and unplanned maintenance, and derivative headwinds, partially offset by stronger secondary products.

Morgan Stanley said near-term U.S. refining margins have roughly doubled since the start of the Iran conflict and now sit near levels last reached in 2022 and 2023.

On Phillips 66 (PSX), analysts upgraded the stock to overweight from equal-weight.

They said the chemicals business is a key factor that sets the company apart from the rest of the sector, with earnings from the segment expected to rise to about $1.1 billion from $352 million. They also raised the price target to $174 from $147.

Morgan Stanley retained an overweight rating on Marathon Petroleum (MPC) and raised its price target to $233 from $200. It also maintained an overweight rating on HF Sinclair (DINO) and increased its price target to $66 from $57.

On Valero Energy (VLO), Morgan Stanley maintained an equal-weight rating and raised the price target to $222 from $182. It also maintained an equal-weight rating on Delek US Holdings (DK) and raised its price target to $40 from $38.

On PBF Energy (PBF), Morgan Stanley maintained an underweight rating and raised the price target to $34 from $27.

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