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Is Higher Gasoline Demand Bullish for Valero?

Published 04/27/2021, 09:22 AM
Updated 04/27/2021, 10:31 AM
© Reuters.  Is Higher Gasoline Demand Bullish for Valero?

© Reuters. Is Higher Gasoline Demand Bullish for Valero?

The demand for gasoline is increasing. That demand is likely to increase even more as people get vaccinated and hit the road this summer. What does this gasoline demand mean for a company like Valero Energy Corporation (NYSE:VLO) and its stock price? Read more to find out.

  • Gasoline continues to trend higher
  • Vaccines leading to herd immunity could push gasoline even higher
  • Crack spreads are firm
  • Valero reported earnings on April 22- the stock has been climbing- Continuing to beating EPS forecasts
  • VLO pays an attractive dividend
Refining crude oil into gasoline and distillates is a capital-intensive business. When the gasoline crack spread fell to negative territory in March 2020, and the distillate processing margin reached the lowest level in a decade, refineries struggled. Companies that process petroleum into products purchase the raw crude oil at market prices and sell the products at market prices. They only have exposure to the refining margin.

Valero Energy Corporation (VLO) is a leading US refining company. Higher oil and oil product prices have led to more attractive refining margins. Since reaching a low of $31 per share in March 2020 and a higher low of $35.44 in late October 2020, the shares more than doubled at the recent high and were trading above the $70 level at the end of last week.

An attractive dividend and the prospects for rising gasoline demand could push VLO shares a lot high over the coming weeks and months as the US heads into the peak driving season. The gasoline market has made a substantial comeback from the pandemic-stricken period in 2020, and that trend is likely to continue. Higher gasoline demand in the post-pandemic period is bullish for Valero shares, which are back in the buy zone.

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