Hormuz Reopening Not A Problem - 2Q26 Refining Earnings Mark-to-Market

Research evidence excerpt

Hormuz Reopening Not A Problem - 2Q26 Refining Earnings Mark-to-Market

ere margins are flat due to Chicago cracks normalizing from very strong levels and

elimination of reversal of 1Q hedging loss, and PARR, where margins decline $5/bbl q/q given

weaker Singapore cracks and maintenance.

PSX, PBF Could Perform Best through Earnings; Cautious DINO, PARR

PSX could benefit the most among large caps through earnings despite more limited upside

to consensus, with the combination of lower flat prices and strong cracks supporting

deleveraging; we estimate net debt could fall >$3B in 2Q. MPC could beat by a wide margin,

though we estimate use of that cash toward buybacks in-line with consensus. We have VLO

earnings beat in-line with the group at 10%, with buyback $0.7B higher than consensus.

PBF should also perform well following more stable operations setting it up for material

deleveraging in 2H26. Many investors believe DINO could outperform should it name a new

CEO; we wonder if it could take time for the market to appreciate a new CEO, while we

forecast lEPS in-line with consensus and more tempered buybacks than large caps. Investors

could shy away from PARR ahead of its HI turnaround and weaker margin outlook q/q. See

estimate updates in Figure 12.

Reiterate Bullish Crack Outlook

We published an updated refining macro view two weeks ago. We estimate product

inventories drew ~140MM bbl from March - May, with clean product exports from Middle East

down 1MM bpd y/y, compounded by 0.5MM bpd declines from RUS and China. Declines have

been partially offset by a 0.8MM bpd y/y increase in US product exports, though we estimate

this will have to decline to 0.2MM bpd y/y to manage low domestic inventories. The decline in

US exports will come before an increase out of the ME.