Even though demand for gasoline, jet fuel and diesel remains well below seasonal lows, Wall Street is betting on a strong recovery from the coronavirus pandemic by pouring money into shares of US oil refiners. Shares of Valero Energy Corp and Marathon Petroleum Corp were trading on Monday at their highest levels since the first week of March. Saying demand was on an upswing as lockdowns ease across the US, Brokerage Wells Fargo raised its price target on certain independent refiners.
Refining stocks have typically performed better than exploration and production companies since at least 2016. Due to weak demand and poor margins, many refiners drew down on their cash loads in recent months. Compared with nearly $21 at the same time last year, the refining crack spread, a proxy for margins, is hovering around $11 a barrel.
Due to lockdowns to manage the pandemic, US fuel demand dropped by nearly 30 percent. Gasoline and distillate demand was still 20 percent lower year-on-year as of the end of May. Product exports fell 14 percent and distillate inventories were at their highest since September 2010.
