Refiner Stocks Soar on Global Refining Capacity Shortage

The energy sector has been benefiting from higher oil prices this year due to Iran's effective closure of the Strait of Hormuz, but one subsector is outperforming the rest: refiners. According to data from the VanEck Oil Refiners ETF (CRAK), refiner stocks have risen by about 24% since the start of the U.S.-Iran war, surpassing both the overall energy sector and the S&P 500 index.

This surge can be attributed to a global refining capacity shortage. With wars in Ukraine and the Persian Gulf, as well as pandemic-era closures and aging infrastructure, global refining utilization was down by 5 million barrels per day during the second quarter compared to the same period last year. As a result, the 3-2-1 crack spread for U.S. refiners reached a new high of $64.

Even if the conflicts end soon, it will take time for refining capacity to return to normal levels, keeping refiners' margins elevated. This optimism has led Goldman Sachs to raise its price target for Valero Energy (VLO) from $286 to $357, suggesting a 14% upside from the current price.