Valero, Russian Sanctions, and Weak Margins

Valero, Russian Sanctions, and Weak Margins

Freedom Financial Archive | Originally posted May 04, 2023

Dear Reader,

Today we’re going to look at the issues with Valero. Specifically, some of the problems they’re going to have when you start looking at coastal oil flows.

Big Picture:

Valero is a very large oil refiner that has assets all around the country, with some of their biggest exposure in the Gulf of Mexico. They produce a large amount of gasoline and distillate fuel that flows all around the world, including in the U.S.

When you look at their options, they’ve been able to play the best of both worlds. Distillate prices have been through the roof, and gasoline has been flowing down into Latin America and other areas.

The problem is, with Russia’s sanctions, they’re no longer sending diesel and gasoline through pipelines into Europe. That’s dumping more product into the market, and they’re taking a significant amount of market share from the U.S., Latin America and Africa, while also driving down margins for companies like Valero.

What it Means for You:

When you look at the export capacity of the coastal refiners, it’s being diminished. That’s going to push more product on shore. While we have the capacity to handle extra product, what you’re going to see is a hit to margins that are delivered by crack spreads.

When you look at the market in general, we’re starting to see crack spreads really get hit. That’s because of economic headwinds, along with a reduction in volume that’s moving around the world.

When you add this all together, there’s going to be a pressure point on refined products, especially with the coastal companies.

That also means there’s an opportunity to capitalize on this pressure.

What to Watch For:

There’s a record amount of crude on the water. There’s also a record amount of crude sitting in West Africa and in the Middle East. Angola and Nigeria, two key bellwethers on physical crude demand, are still struggling to sell.

When you look at the rest of the world, there’s not a lot of demand, which limits where the U.S. can send product. However, this also means you should start to see rates coming down.

King regards,

Freedom Financial News