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Morningstar | Valero Well Positioned to Thrive in Almost Any Market Environment

Valero is well positioned to thrive in almost any market environment, thanks to its high- quality refining assets and their location. Historically, Valero has held an advantage thanks to its system of 14 refineries that is more complex than competitors', allowing it to process lower-quality feedstock into a high-value product.The emergence of light crude discounts has somewhat nullified this advantage, but Valero has successfully pivoted to processing greater amounts of high-quality discounted domestic crude. It first increased throughput of light crude and bolstered margins by substituting domestic for imported crude. It further increased throughput of discounted light crude by constructing additional light crude processing capacity and investing in transportation infrastructure.Although light crude discounts have waxed and waned over the past few years, we expect them to remain at levels well above long-term historical averages. All U.S. refiners should benefit, but Valero is particularly well positioned. The volatility in differentials means it will not always be optimal to maximize throughput of domestic light crude. Given its complex assets and concentration in the Gulf Coast, Valero retains the access and capability to process light or heavy crude, depending on which offers the greatest discount or optimal economics. As a result, it can do well in a variety of market conditions.Through its large Gulf Coast footprint, Valero is able to export surplus product, a critical advantage as it supports high utilization levels and potentially captures higher margins. In the past few years it has exported around 13% of its production, but that figure is likely to grow over time as the foreign market call on U.S. product grows and Valero adds export capacity.Unlike other independent refiners, Valero does not own a listed master limited partnership to house its midstream assets after it bought out Valero Energy Partners in late 2018. Though now combined with its refining segment, Valero still boasts a large collection of logistics assets and continues to invest to increase feedstock and product flexibility.