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Shorting Valero: Mapping the Short Interest in VLO

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Jul. 19 2017, Updated 9:36 a.m. ET

Short interest in Valero

Valero Energy (VLO) has seen an increase in its short interest (as a percentage of its outstanding shares), from 3.4% at the end of April to its current level of 4.3%. This usually implies that the bearish sentiment toward a stock has increased. During this same period, Valero’s stock price has risen 4%.

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What affected Valero in the past three months?

In the past three months, Valero has seen a series of events affecting the stock. In 1Q17, Valero’s earnings surpassed estimates, with its adjusted net income rising from $283 million in 1Q16 to $305 million.

The rise in VLO’s adjusted net income was due to growth in adjusted ethanol earnings and its VLP (VLP) or midstream earnings. But its adjusted refining earnings fell marginally.

Refining margin indicators and RINs

In 2Q17, Valero’s refining margin indicators, or the regional crack indicators in the areas where VLO operates, have risen sequentially. Valero’s indicators rose in three of the four areas, pointing to the likely rise in its refining margins in its upcoming 2Q17 earnings.

But in 2Q17, VLO’s RIN (renewable identification numbers) costs have risen sequentially. This implies that the rise in Valero’s refining margin will likely be partially offset by the rise in RIN costs. In 1Q17, RIN costs stood at $146 million. VLO expects these costs to be around $750 million in 2017.

Peer short interest

Delek US Holdings (DK) has also witnessed a rise in its short interest—by 0.2% since the end of April. However, short interest in Tesoro (TSO) and HollyFrontier (HFC) has fallen 2.1% and 1.3%, respectively, during the same period. DK, TSO, and HFC now have short interests of 8.1%, 5.8%, and 6.9%, respectively.

Since the end of April, DK and TSO have seen rises in their stock price—by 11% and 20%, respectively—while HollyFrontier has seen a 3% fall.

Continue to the next and final part of this series for a look at valuations.

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