By Avi Salzman
In a messy year for energy stocks, refiners have been stars. Based on Valero's earnings report on Thursday, that trend could continue.
The Energy Select Sector SPDR Fund, which is weighted toward oil majors like Exxon Mobil and oil producers, has risen just 3.2% this year. But the VanEck Oil Refiners ETF is up 40%. In May, Barron's wrote that refining stocks were likely to swing higher , because of growing margins.
Valero, one of the largest U.S. refiners, jumped 7% on Thursday after reporting better-than-expected profits, and is up 41% for the year. The company is earning wide margins for refining fuels like gasoline and diesel.
The reason that refiners are doing well while oil producers are hurting has to do with the supply-demand balance in each industry. While the global crude market is oversupplied today, the market for refined fuels is much tighter. There are barely enough refineries to make all the gasoline and diesel that people are using.
Refiners buy crude oil and turn it into products. Their profits grow when oil gets cheaper, but fuel stays about the same price or gets more expensive. U.S. oil prices are down 14% this year, while wholesale diesel prices are up 4% and gasoline prices have fallen 4%. Valero's revenue stayed stable in the third quarter, but its costs fell, allowing the company to triple profits from last year. Valero also makes ethanol, and has benefited from a record corn crop and strong demand.
The future looks bright. Valero says that refining capacity is expected to grow slowly next year, meaning that fuel production may not be able to keep up with the demand. "We expect things to be tighter next year as well," the company said on the earnings call. If so, Valero could be in for another strong year.
Write to Avi Salzman at avi.salzman@barrons.com
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October 23, 2025 17:05 ET (21:05 GMT)
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