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Impressive Performance For Valero And Marathon After The Lowest Levels Since 2012


  • Refining companies follow the crack spreads like obedient puppies.
  • The season for peak gasoline demand has arrived.
  • An easing of social distancing guidelines would support crack spreads.
  • VLO doubles from March through April.
  • MPC is the leading US refinery, and its shares also doubled in one month.
  • Looking for more stock ideas like this one? Get them exclusively at Hecht Commodity Report. Get started today »

The crack spread in the petroleum market reflects the cost of refining crude oil into gasoline and distillate products. Heating oil is a distillate, and the NYMEX heating oil futures contract serves as a proxy for other distillates, including diesel and jet fuels.

The global pandemic has caused the highest level of volatility in many years in crack spreads. Social distancing guidelines caused the demand for gasoline to evaporate as many people work from home and have only ventured out for food and supplies over the past months. The demand for gasoline disappeared, and inventories grew, pushing the gasoline processing spread into negative territory for the first time since 2009.

Meanwhile, it has been a mixed picture for the distillate crack spread as airline traffic ground to a halt. At the same time, the supply chain continued to operate, causing demand for diesel fuel to remain at higher levels than jet fuel and gasoline.

Refining companies follow the crack spreads like obedient puppies

Crack spreads offer clues about the demand for crude oil, which is the main ingredient in the oil products. At the same time, crack spreads are real-time indicators for the profitability of companies that make significant capital investments to refine petroleum into oil products. Valero Energy Corp. (NYSE:VLO) and Marathon Petroleum Corporation (MPC) shares move higher and lower with the crack spreads.

Crack spreads have experienced significant volatility since mid-February. Since gasoline is the most ubiquitous oil product, it often impacts the share prices of oil refining companies the most.

Source: CQG

The chart shows that the gasoline processing spread fell from $20.76 in late February to a low of negative $3.55 in late March when markets across all asset classes were melting down during the height of fear and uncertainty over the global pandemic. Wild volatility in crude oil

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This article was written by

Andrew Hecht profile picture

Andrew Hecht is a 35-year Wall Street veteran covering commodities and precious metals.

He runs the investing group The Hecht Commodity Report, one of the most comprehensive commodities services available. It covers the market movements of 20 different commodities and provides bullish, bearish and neutral calls; directional trading recommendations, and actionable ideas for traders. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (6)

I was thinking about buying VLO, but haven't refilled my gas tank since March, still over a half tank left, only driving to and from Costco. I was thinking storage must be running out for gasoline [plus it has limited shelf life?] as well as oil so decided not to buy.
Oct-Dec, not May
farmed out profile picture
@Andrew Hecht great article. What about that nice VLO dividend-- do you think Valero will maintain it?
IZZKUBE2.5 profile picture
@farmed out my savings ,

Apr. 24, 2020 4:19 PM ET|About: Valero Energy Corporation (VLO)|By: Akanksha Bakshi, SA News Editor

Valero Energy (NYSE:VLO) declares $0.98/share quarterly dividend, in line with previous.

Forward yield 7.48%

Payable June 3; for shareholders of record May 14; ex-div May 13.
farmed out profile picture
@IZZKUBE2.5 Yes, I am familiar with that news release. But having lived through a few downturns (I am 66) I know that 1 quarter doesn't mean that the dividend is safe for the next few quarters, though I am hoping so.
GarBooks profile picture
Oil is dirt cheap and palladium prices have been crushed. Very pipeline friendly Administration. Pricing of diesel fuel and propane remains very high.

I would rate the $vlo Valero Dividend as safe for the time being (going into driving Season.) Come September prepare for a re-evaluation of that though.
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