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Saudi Aramco notified at least two European refining customers that they will receive no crude oil next month. This follows an attack on a major pipeline that carries oil to the Red Sea.
While Valero operates primarily in North America, these supply disruptions in Europe tend to push global fuel prices higher. When global supply tightens, the profit margins for refiners, the difference between what they pay for crude and what they sell fuel for, often widen. This adds to a week of rising energy prices that generally makes Valero's refining business more profitable.
Source: Reuters
On September 17, the board of directors increased its size to 11 members and elected Matthew Audette as a new independent director. Audette, who currently serves as the President and CFO of LPL Financial, will also join the board's audit committee. This is a routine addition of outside expertise to the board. While the company also approved a small increase to director pay starting in 2027, these changes are part of normal corporate governance and do not change the day-to-day operations or the outlook for the business.
Source: 8-K filing
Raymond James raised its price target for Valero from $350 to $450 while keeping a strong buy rating. This move follows a week where several analysts adjusted their views as oil and diesel prices reached multi-year highs.
Valero makes its money on the gap between the cost of crude oil and the price of the fuels it sells. With diesel prices recently crossing $6 a gallon, analysts expect these profit margins to stay wider for longer than previously thought. The new target is about 12 percent higher than where the stock trades today.
Source: Raymond James
Oil prices climbed after Saudi Arabia shut down its East-West pipeline, which serves as a critical alternative route for moving oil when the Strait of Hormuz is blocked or dangerous. This closure follows several attacks on the infrastructure and comes as regional talks to secure shipping lanes have been postponed.
For a refiner like Valero, higher oil prices are a double-edged sword. While rising prices often mean Valero can charge more for finished products like gasoline, the company also has to pay more for the raw crude it processes. The key for Valero is whether the price of fuel rises faster than the price of oil, a gap known as the crack spread that determines how much profit the company keeps.
Source: Bloomberg Markets and Finance
Diesel prices in the US have climbed past $6 a gallon, a record level that reflects a tight global supply for the fuel. This is a direct benefit for Valero because it increases the crack spread, which is the difference between what a refiner pays for crude oil and the price it gets for the finished products it sells.
While high fuel prices can sometimes lead to people driving less, diesel is the primary fuel for shipping, trucking, and heavy industry, where demand is harder to cut quickly. As one of the world's largest independent refiners, Valero is in a strong position to capture these higher margins across its complex refining network.
Source: Bloomberg Markets and Finance
Management has consistently set a bar that the business easily clears, with profits growing much faster than analysts can keep up with.
| Expectation | |
|---|---|
| EPS | $18.52 |
| Revenue | $39.53B |
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