2023-04-18 10:48:09 ET
Valero Energy ( NYSE: VLO ) -1.6% and Marathon Petroleum ( NYSE: MPC ) -0.8% in Tuesday's trading as Wells Fargo downgraded both refiners to Equal Weight from Overweight with $135 price targets, while lowering PTs for all refiners in its coverage, as the bank raised "the caution flag on the refining sector."
Blame "whichever factors you want - warm winter, industrial recession, lag effects of 2022's high prices, etc. - but Q2 2023's NYH diesel cracks have fallen by approximately two-thirds from Q4 2022's $72/bbl," and jet cracks also have significantly corrected, according to analyst Roger Read.
"When we think about upside potential for the refiners, we want a three-legged stool with favorable crude dynamics, strong gasoline cracks and max distillate yield mix," Read wrote. Strong demand implies the refining sector "has or soon will shift into maximum gasoline mode," suggesting "we now have a two-legged stool, which is inherently less stable."
Among other refiners, Read rates HF Sinclair ( DINO ), PBF Energy ( PBF ) and Phillips 66 ( PSX ) at Overweight, and Delek US ( DK ) at Underweight.
Also citing concerns over narrower heavy spreads and softer diesel cracks, Tudor Pickering Holt earlier downgraded Valero to Hold from Buy .
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Valero, Marathon Petroleum cut at Wells Fargo in cautious refining outlook