March 26, 2024

UBS analysts have raised their price target for energy firm Valero (NYSE:VLO) from $167 to $197, maintaining a Buy rating. Valero’s impressive stock performance, a 259% gain since March 2020, has surpassed both the S&P Energy index and the wider S&P 500.

The UBS analysts forecast that refineries’ margins will remain robustly above the mid-cycle level until 2024, implying that new establishments in Mexico and Nigeria would not significantly affect global supply until at least mid-2024. The recent 27.26% YTD rise in Nymex gasoline Crack, coupled with the US refineries’ higher gasoline output relative to diesel, is likely to substantially boost Valero’s earnings.

Aside from these factors, the closure of both the Rodeo and LYB’s Houston refineries is expected to tighten the gasoline market. This will increase the supply of heavy sour barrels in the Gulf Coast, further benefiting Valero. Reports of drone strikes causing widespread downtime in Russian refineries could intensify upward pressure on crack spreads. Lastly, Valero’s North Atlantic and Quebec refineries, able to process up to 50% Canadian crudes and benefit from lower Syncrude prices, stand to gain from these market dynamics.