Refining Giants Price Targets Raised

Wells Fargo raises price targets on two major refining giants amid a strong market upcycle.

Wells Fargo has raised its price targets on Valero Energy Corporation (VLO) and Phillips 66 (PSX), two of which have almost doubled in value since the start of the year. The bank sees the current refining upcycle to last longer and follows a decision by the EPA to grant 1.76 billion renewable fuel-credit exemptions to small refineries for 2025. This is the largest volume of exemptions from mandates requiring blending of renewable fuels since 2017 and is roughly double the amount the agency estimated earlier this year. However, the EPA's decision could backfire on both refiners as they are not primary beneficiaries of the exemptions. The increased price targets reinforce the bullish case surrounding them and suggest that the refining up cycle may still have momentum left. However future RFS obligations and margin normalization remain key risks after their strong rallies.

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