Valero Energy: 2Q26 Post Mortem and Model Update

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Valero Energy: 2Q26 Post Mortem and Model Update

, which compares to the STe at $41.60. Q2 2.29 12.57A 9.52

Q3 3.67 15.01 8.95

We model refining utilization at ~95% in 2026, and we forecast a gross margin of Q4 3.83 10.93 6.89

$21.62 per bbl and opex of $4.83 per bbl. We expect VLO to generate $14.1B of FY 10.69 42.76 35.07

FCF in FY26 and expect the company to continue to return significant FCF to

Style Exposureshareholders. VLO reiterated its commitment to buybacks on yesterday's call,

noting it can pay out well above its 50% minimum while still building cash in the

current environment. VLO returned $2.6 B to shareholders in 2Q (59% payout

ratio) and we forecast $7.3 B in share buybacks in FY26. After updating our model,

we increased our Dec-26 PT to $339 (from $294 per share) after marking to market

for recent strip cracks.

• Refining Macro. Management sees refining fundamentals supported by low

global product inventories, limited excess refining capacity, and resilient

transportation fuel demand. Gasoline is recovering fastest of the light products,

followed by diesel and then jet, and consultant data suggests that even if the

conflict ended today, global inventories would remain below the five-year

average range through 2027. Relative gasoline strength reflects a closed

transatlantic arb to import European barrels combined with strong Latin

American export demand, leaving net gasoline imports down about 400 Mb/d

versus historical levels. On feedstocks, the Gulf Coast remains one of the most

advantaged crude sourcing regions globally given domestic production and

access to Canadian and Venezuelan crudes. VLO continues to see good

Venezuelan heavy availability and expects processing rates of Venezuelan