The oil and gas refining and marketing sector has emerged as a standout performer in 2026, driven by increased refining margins. Disruptions in refinery operations due to geopolitical tensions in the Middle East and Russia have led to a reduction in global supplies of essential fuels such as gasoline, diesel, and jet fuel. Despite rising fuel prices, the demand for transportation fuels has remained robust. Limited refining capacity and low fuel inventories have further tightened product markets. Although refining stocks have seen significant gains this year, the industry’s outlook remains positive as the process of repairing damaged facilities and rebuilding inventories is expected to be time-consuming.
Within this context, Valero Energy (NYSE:VLO), PBF Energy (NYSE:PBF), and Marathon Petroleum (NYSE:MPC) have all seen their stock prices more than double year-to-date. The tight fuel supplies and access to cheaper crude grades suggest potential for further growth in these stocks.
Factors Driving the Refining Industry’s Growth
Global Refinery Outages: Conflicts in the Middle East and Russia have caused several refineries to reduce or halt operations. Marathon Petroleum estimates that approximately 10 million barrels per day of global refining capacity is currently offline, which is about 3 million barrels per day above historical norms. Some refineries have sustained physical damage that will require time to repair. With limited spare capacity, restoring normal fuel supplies may take longer than recovering crude oil flows, which should help maintain favorable refining margins.
Low Fuel Inventories and Consistent Demand: Global refined product inventories remain low, with U.S. diesel inventories below their five-year range and gasoline stocks near the bottom of that range. Despite higher prices, demand for gasoline, diesel, and jet fuel has remained steady. Valero has reported robust gasoline and diesel sales across its U.S. wholesale network, alongside strong export demand. With inventories already low, ongoing fuel consumption is likely to keep product markets tight and support refining margins.
Cost Advantages for U.S. Refiners: Higher shipping costs have made Canadian and Venezuelan heavy crude more affordable compared to other crude grades. This benefits U.S. refiners like Valero, PBF Energy, and Marathon Petroleum, which can process various types of crude oil and capitalize on lower feedstock costs. Additionally, U.S. refiners benefit from cheaper natural gas compared to some overseas competitors. Marathon Petroleum anticipates that refining margins will remain elevated through at least mid-2027, supported by tight fuel supplies and steady demand.
Potential for Further Upside
Despite having gained over 100% this year, Marathon Petroleum, Valero, and PBF continue to hold a Zacks Rank #1 (Strong Buy). The combination of low fuel inventories, steady demand, and wider heavy crude discounts remains advantageous for these refiners. Their ability to process cheaper feedstocks and benefit from higher refining margins suggests that these stocks may have further upside potential even after their significant gains.
Valero Energy: As a major downstream energy company, Valero Energy is involved in refining, renewable diesel, and ethanol production. Its network of 14 refineries boasts approximately 2.5 million barrels per day of crude processing capacity, with a strong presence along the U.S. Gulf Coast. Valero also operates 12 ethanol plants and produces renewable diesel and sustainable aviation fuel through its Diamond Green Diesel joint venture. The company’s ability to process different crude grades allows it to benefit from discounts on Canadian and Venezuelan heavy crude. With low fuel inventories and steady demand, Valero is well-positioned to capitalize on favorable refining margins. The recent completion of the St. Charles refinery optimization project is expected to further enhance gasoline production and profitability.
PBF Energy: PBF Energy operates refineries across the East Coast, Mid-Continent, Gulf Coast, and West Coast, serving several major U.S. fuel markets. Its refining system includes facilities such as Torrance, Martinez, Chalmette, Paulsboro, and Toledo, supported by logistics operations. PBF also participates in renewable diesel production through its St. Bernard Renewables joint venture, providing an additional source of earnings. The company’s complex refining system allows it to process discounted heavy crude and benefit from higher gasoline, diesel, and jet fuel margins. Coastal refineries are particularly well-positioned as global fuel shortages increase the need for imports into these markets. PBF is also focused on reducing operating costs and improving refinery reliability. Its refining business improvement program and projects to increase higher-value fuel production should help strengthen profitability beyond the current favorable margin environment.
Marathon Petroleum: Marathon Petroleum is a major U.S. downstream energy company with refining and marketing operations across the Gulf Coast, Mid-Continent, and West Coast. Its refining network is supported by extensive pipelines, terminals, and other logistics assets. The company’s midstream subsidiary, MPLX, provides an additional source of cash flow, while its renewable diesel operations broaden its fuel production portfolio. Marathon has also agreed to sell its St. Paul Park and Mandan refineries to focus investment on higher-return opportunities, mainly along the Gulf Coast. The company’s flexible refining system allows it to process discounted Canadian heavy crude and adjust production toward higher-value fuels. Low product inventories, steady demand, and limited global refining capacity continue to support margins. Investments at Garyville and Galveston Bay are expected to improve crude processing flexibility and increase production of higher-value fuels. Management expects elevated refining margins through at least mid-2027, providing a favorable outlook for the company’s refining operations.
Footnotes:
- Oil and gas refining stocks have performed strongly in 2026 due to higher refining margins and geopolitical disruptions. Source.
- Valero Energy, PBF Energy, and Marathon Petroleum have all more than doubled in stock price year-to-date. Source.
- Marathon Petroleum estimates that around 10 million barrels per day of global refining capacity is offline. Source.
- U.S. refiners benefit from cheaper natural gas compared to some overseas competitors. Source.
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