West Texas Intermediate (“WTI”) oil is currently trading below $70 per barrel, according to data from Oilprice.com, significantly lower than the more than $100 per barrel reached in May this year. Phillips 66 PSX is likely to gain from the softer crude pricing environment. This is because PSX, a leading refining company, is now able to purchase oil at a lower cost, enabling the production of end products.
Although a leading refiner, PSX, unlike most of its refining peers, has diversified its business across midstream and chemicals. It is to be noted that the midstream business, by its very definition, is resilient since it generates stable cash flows as the assets are being utilized for the long term, and is less vulnerable to commodity price volatility.
Hence, having a diversified business model, the large-cap stock is insulated from commodity price volatility to a great extent. Given the strength and resilience of its business model, Phillips 66 has significant room to continue its upward trajectory.
Will MPC & VLO Also Gain?
Marathon Petroleum Corp. MPC and Valero Energy Corporation VLO are two other leading refining companies that are well poised to gain from falling crude prices and the tight refining capacities across the globe.
MPC runs refining systems that are the largest in the United States. With high utilization of refineries, Marathon Petroleum is well-positioned to capture almost all of the available profitable opportunities.
For refiners like Valero Energy, the considerable decline in oil prices will also likely increase refining margins, as input costs have fallen remarkably.
Apart from this, investors should note that the global refining capacity is constrained and fuel inventories are low. On the demand side, gasoline, diesel and jet fuel remain resilient. This means people are still driving and flying quite often, while diesel demand suggests transportation, freight, agriculture and industrial activity are still holding up. As a result, with higher refinery activities and constrained fuel supply, refining margins for refiners like VLO are quite strong.
PSX’s Price Performance, Valuation & Estimates
Shares of PSX have gained 38.6% over the past year compared with the 33.9% improvement of the industry.
From a valuation standpoint, PSX trades at a trailing 12-month enterprise value to EBITDA of 12.64X. This is above the broader industry average of 5.42X.
The Zacks Consensus Estimate for PSX’s 2026 earnings has seen upward revisions over the past seven days.
PSX currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.See Stocks Now >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Valero Energy Corporation (VLO): Free Stock Analysis Report
Marathon Petroleum Corporation (MPC): Free Stock Analysis Report
Phillips 66 (PSX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research