Valero Energy Corporation

Valero had a solid year-end, with refineries running at 97% of their capacity in a positive refining margin situation. The company delivered an all-around beat and saw low product inventories and maintained refining margins given the ongoing rebound in product demand. Besides, significantly discounted sour crude oils and fuel oils helped its refinery. These reductions were prompted by an increase in the supply of sour crude oil, high freight costs, and the effects of the IMO 2020 requirement for lower sulfur marine fuels. High natural gas costs in Europe also encouraged refiners to process sweet crude oils rather than sour crude oils, placing additional pressure on sour crude oils. In addition, The Port Arthur Coker project is anticipated to be finished in the second quarter of 2023 and will boost the refinery’s throughput capacity and ability to process more sour crude oils and residual feedstocks while also enhancing turnaround efficiency. The BlackRock and Navigators carbon sequestration project in the ethanol industry is still on track to launch start-up operations in late 2024. Further, they signed a GEA with SAP to strengthen its relationship with the company. We give Valero Energy a ‘Hold’ rating with a revised target price.