Valero’s stock performance
In 2015, stocks of refining companies like Valero Energy (VLO) witnessed an upward spiral until the end of November. Between July 2014 and November 2015, Valero’s stock was up by 45%. However, since then, the stock had fallen until early 2016. Refining stocks started falling with the news of the abolition of the crude oil export ban in the US, which raised fears of a fall in the refining margins of US refineries. Valero’s stock gains fell to 9% in February 2016.
However, the stock gains rose to 31% in March 2016 compared to July 2014. This was due to the fact that refining cracks started strengthening but remained volatile. However, the cracks witnessed weakness in June 2016. Valero’s stock fell again. Valero’s stock is now down by 3% until July 2016 compared to July 2014.
Valero’s stock correlation to crude oil and natural gas prices
Valero’s stock shows a positive correlation to crude oil prices. VLO’s correlation coefficient versus WTI for the 12-month period stands at 0.19. The correlation coefficient shows the relationship between two variables. A correlation coefficient value of zero to one shows a positive correlation and zero states no correlation. Negative one to zero shows an inverse correlation.
The value shows a feeble correlation. It also means that on average, 19% of the movement in Valero’s stock price can be explained by changes in WTI prices. The low correlation is also visible in stock returns. Since July 2014, Valero’s stock is down by 3% but crude oil is down by 52%. The correlation to natural gas is negative and stands at -0.03.
The situation remains the same for VLO’s peer Tesoro (TSO). The correlation of TSO versus WTI stands at 0.24. Other downstream players like Western Refining (WNR), Delek US Holdings (DK), Alon USA (ALJ), and Phillips 66 (PSX) show higher correlations of 0.33, 0.34, 0.35, and 0.47 to WTI, respectively. The iShares Russell 1000 Value ETF (IWD) has ~13% exposure to energy sector stocks.