Valero Energy Corporation (NYSE:VLO) saw its shares climb to an all-time high on Friday, closing at $309.65 after a 3.13% gain. The stock rose 10.3% over the week, buoyed by record-high U.S. refining margins that have shifted market attention to the third quarter.
The rally reflects a bet on margin resilience, with timing proving crucial. Record crack spreads emerged in July, after the second quarter ended on June 30, meaning they will not be reflected in Valero's upcoming Q2 earnings report on July 30. The NYMEX 3-2-1 crack spread finished Thursday at $69.66 per barrel, marking a record high for the third consecutive session. Diesel led the margins, with its crack spread topping $91 per barrel, while gasoline's ended at nearly $59.
Valero posted a refining margin of $14.90 per throughput barrel in the previous quarter, with average throughput of 2.914 million barrels per day and refining operating income of $1.8 billion. Based on these figures, a $1 change in realized margin equates to roughly $2.914 million in daily earnings, or about $268 million over the 92-day third quarter. A $5 change would shift gross refining margin by approximately $1.34 billion. These are preliminary estimates based on constant throughput and exclude operating expenses, depreciation, interest, and taxes.
It is important to note that the exchange benchmark does not perfectly reflect Valero's actual margin. Differences in crude slate, yields, local prices, hedging, and outages can create discrepancies. Despite this, investors are already paying a premium for Valero shares. The company's trailing P/E ratio of 22.6x is about 10% higher than the average of peers Marathon Petroleum (MPC) at 20.6x and Phillips 66 (PSX) at 20.4x, suggesting that some margin persistence may already be priced in.
Valero's board approved a $1.20 quarterly dividend on Thursday, payable on August 31, matching the company's previous two payments in 2026. Meanwhile, product inventories are underpinning margins. Gasoline stocks fell by 1.5 million barrels to 210.5 million, the lowest level for this time of year since 2012. Refineries operated at 96.2% capacity. Independent oil analyst John Kemp noted that refiners will need to see higher gasoline prices before shifting back to maximum-gasoline production mode.
The next key test comes on Wednesday, July 22, when the U.S. Energy Information Administration publishes its weekly petroleum data. Traders will be watching gasoline inventories and refinery activity closely. Continued declines amid high run rates would reinforce scarcity concerns, while a significant increase would cast doubt on them.
Valero is scheduled to report second-quarter earnings before markets open on July 30, with a conference call at 10 a.m. EDT. Investors should distinguish those results from the stronger July benchmarks. Risks include prolonged elevated crude prices, which could dampen fuel consumption, as well as inventory restocking, softer exports, or refinery shutdowns that could limit Valero's gains.
Valero's record price reflects some expectations of lasting margins, but weekly inventory data will challenge that view. The company's market capitalization now stands at $92.3 billion.
