UBS analysts increased their price target for Valero Energy (NYSE:VLO) to $197 from $167, keeping a Buy rating. The analysts noted that Valero’s stock has risen 259% since March 2020, outperforming the S&P Energy index and the broader S&P 500.

The analysts anticipate that refining margins will stay significantly above the mid-cycle level into 2024, with new refineries in Mexico and Nigeria expected to have minimal impact on global supply in the first half of 2024. Given the recent increase in Nymex gasoline Crack by 27.26% year-to-date, and the fact that US refineries produce more gasoline relative to diesel, the strengthening of gasoline crack is seen as a major earnings boost for Valero.

Additionally, the closure of the Rodeo refinery and LYB’s Houston refinery is likely to tighten gasoline markets and increase the supply of heavy sour barrels in the Gulf Coast, benefiting Valero. Reports of drone strikes on Russian refineries leading to downtime are expected to apply upward pressure on crack spreads. Valero’s North Atlantic and Quebec refineries, which can utilize up to 50% Canadian crudes and benefit from lower Syncrude prices, are poised to gain from these market conditions.

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