Refining is supposed to be a boring business. You buy crude, you cook it, you sell the output, and if you're lucky the spread between the two covers your costs. This year, boring has been very, very lucrative.
Valero Energy Corp. (NYSE: VLO) climbed 2.3% to $391.61 Tuesday, taking its year-to-date gain to 140.6% and putting the refiner on pace for its best year on record, topping roughly 128% in 2005.
The U.S. ultra-low-sulfur diesel crack spread, the gap between what refiners pay for crude and what they sell fuel for, sits near $106 a barrel, up from about $33 in January. For context, the gasoline crack spread is roughly $31. Diesel is doing the heavy lifting here, and then some.
Three shocks compounded to get us here: the Hormuz disruption, Russian export bans after drone strikes knocked out roughly a quarter of its refining capacity, and winter restocking into depleted inventories. Any one of those would move prices. All three at once is how you get a crack spread that looks like a typo.
Valero and Marathon Petroleum Corp. (NYSE: MPC) more than doubled per-barrel refining margins in Q2, returning over $5 billion to shareholders. That's the part worth sitting with: the windfall isn't just sitting on the balance sheet, it's flowing back to investors.
Both refiners are now among the best-performing S&P 500 stocks year to date. The VanEck Oil Refiners ETF (NYSE: CRAK) has rallied 71% year to date, which tells you this isn't a single-company story. When the whole sector rips, it's usually the spread talking.
