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4Q16 Pre-Earnings Release: Valero’s Stock Performance


Nov. 20 2020, Updated 5:07 p.m. ET

Valero’s stock performance: A rollercoaster ride

Refining sector stocks usually perform in line with refining margins and cracks. Since February 2016, refining stocks have been putting up volatile performances in an uncertain crack environment. In the year, refining cracks rose from February to March, fell from March to July, and rose again from July to September.

Continuing the uptrend, Valero’s stock rose 29% from October 3, 2016, to December 30, 2016, despite the fact the refining cracks put up mixed performances in its operating zone. However, the cracks showed improvement in December 2016.

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The rise in VLO’s stock price is likely due to the optimism the entire energy sector is witnessing on the news of production cuts by OPEC (Organization of the Petroleum Exporting Countries), which were also supported by Russia, a non-OPEC country. For more information, you can read Crude Oil Prices Skyrocket as OPEC Agrees to Cut Production.

In 4Q16, Tesoro (TSO) and Phillips 66 (PSX) rose 10% and 7%, respectively. Marathon Petroleum (MPC) rose even sharply by 23%. For broad-based exposure to refining sector stocks, you can consider the Energy Select Sector SPDR ETF (XLE). The fund has ~82% exposure to oil, gas, and consumable fuel sector stocks.

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 with WTI for the trailing-12-month period stands at 0.15. This value reflects a weak correlation. It also means that on average, 15% of the movements in Valero’s stock price can be explained by changes in WTI’s price.

This weak correlation is also visible in VLO’s returns. Since January 16, 2015, Valero’s stock has risen 46%, but crude oil has risen 6%. Natural gas has risen 8% in the same period. Valero’s correlation with natural gas stands at -0.01.


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