VLO - Valero cut at Tudor Pickering Holt on narrower heavy spreads softer diesel cracks

2023-04-17 15:43:16 ET

Valero Energy ( NYSE: VLO ) -2.3% in Monday's trading as Tudor Pickering Holt downgraded the stock to Hold from Buy with a $129 price target, cut from $154, citing concerns over narrower heavy spreads, lower contribution from the new Port Arthur coker, and softer diesel cracks.

Coastal heavy crude spreads are significantly compressing on reduced sour supply from the recent OPEC cuts, Tudor analyst Matthew Blair said, noting April MTD Maya spreads are narrower compared to Brent by $1.30/bbl Q/Q, and the May K factor will result in another cut of $1.90.

Blair also believes market dynamics are pulling down the contribution of Valero's ( VLO ) headline project, the Port Arthur coker, which will start up later in Q2; management noted on the Q4 call that the estimated annual contribution of this coker would have been $700M in the quarter, but with lower diesel cracks and tighter heavies, the analyst forecasts the earnings contributor will come in closer to $550M-$600M.

"Speaking of diesel cracks, the recent trends are pretty concerning, [as] the RVO-adjusted NTM diesel crack is down," Blair also noted.

Valero ( VLO ) is "well positioned on renewable diesel and ethanol in addition to basic oil refining, but in contrast to last year, refiners will not benefit from SPR releases," Laura Starks writes in an analysis posted recently on Seeking Alpha .

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