3 Refining & Marketing Stocks Investors Should Track Closely

The Zacks Oil and Gas - Refining & Marketing industry plays a vital role in turning crude and other feedstocks into fuels and everyday products, but it remains a tough space to navigate. Margins are highly volatile and swing with inventories, demand patterns, imports, and refinery utilization. Small shifts in crack spreads or light-heavy and sweet-sour differentials can quickly change profitability. Unplanned outages, seasonal demand changes, and uneven product consumption only add to the uncertainty. Rising operating costs and tighter environmental rules further pressure returns, forcing companies to stay disciplined with spending. That said, the picture is not entirely bleak. The industry has outperformed the broader energy sector and the S&P 500 over the past year, and valuations remain well below market averages. Even with a bearish industry rank and a weaker earnings outlook, selective opportunities still exist. Investors looking for exposure may consider well-positioned names like Phillips 66 PSX, Marathon Petroleum MPC and Valero Energy VLO.

Industry Overview

The Zacks Oil and Gas - Refining & Marketing industry consists of companies involved in selling refined petroleum products (including heating oil, gasoline, jet fuel, residual oil, etc.) and a plethora of non-energy materials (like asphalt, road salt, clay and gypsum). Some companies operate refined product terminals, storage facilities and transportation services. The primary activity of these firms involves buying crude/other feedstocks and processing them into a wide variety of refined products. RRefining margins — the gauge of profitability — are highly volatile and generally reflect petroleum product inventory levels, demand for refined products, imports, regional differences, and industry capacity utilization. Other major determinants of refining profitability are the light/heavy and sweet/sour spreads. Refiners are also prone to unplanned outages.

3 Trends Defining the Oil and Gas - Refining & Marketing Industry's Future

Margin Volatility and Demand Uncertainty: Despite periods of strength, refining and marketing remain a highly cyclical business, and margin volatility is a constant risk. Crack spreads can shift quickly due to weather changes, refinery run rates, or unexpected inventory builds. Even when demand appears stable, short-term softness can emerge if refineries run too hard at the wrong time, leading to product oversupply. Seasonal effects can exaggerate these swings, making earnings less predictable from quarter to quarter. Additionally, demand growth is not uniform across products, and changes in consumer behavior, efficiency gains, or economic slowdowns can pressure volumes. This uncertainty makes it difficult for the industry to sustain peak profitability for long periods. Investors must be comfortable with sharp changes in cash flow and sentiment, even when the longer-term balance looks constructive.

Operational Flexibility and Strong Export Linkages: A key macro positive for the refining and marketing industry is the growing importance of operational flexibility combined with access to global markets. Refiners that can adjust crude slates, optimize yields, and shift products between domestic and export channels are better positioned to manage volatility. Export demand, particularly for distillates and jet fuel, provides an important release valve when domestic markets soften. This global linkage helps balance regional supply-demand mismatches and supports utilization rates. At the same time, improvements in logistics, storage, and distribution allow refiners to respond faster to price signals and arbitrage opportunities. Over time, this flexibility reduces earnings volatility relative to past cycles and strengthens cash flow durability, making the industry more resilient even when macro conditions are uneven.

Cost Inflation and Regulatory Pressure: Another key challenge for the refining and marketing industry is rising costs paired with increasing regulatory complexity. Maintenance, labor, and turnaround expenses have trended higher, making it more expensive to keep assets running safely and reliably. Inflation in construction and equipment costs also raises the bar for new investments, forcing refiners to be extremely selective with capital spending. At the same time, environmental regulations and fuel policy uncertainty add layers of risk, particularly for facilities operating in stricter jurisdictions. Compliance spending does not always generate direct returns, yet it is unavoidable. These pressures can compress margins over time, especially for less efficient assets, and may accelerate further capacity closures. While this can help tighten supply, it also increases operational risk and long-term planning uncertainty for the industry as a whole.

Zacks Industry Rank Indicates Bearish Outlook

The Zacks Oil and Gas - Refining & Marketing is a 15-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #197, which places it in the bottom 19% of 243 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. As a matter of fact, the industry’s earnings estimate for 2026 has gone down 17.5% in the past year.

Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Outperforms Sector & S&P 500

The Zacks Oil and Gas - Refining & Marketing industry has fared better than the broader Zacks Oil - Energy Sector as well as the Zacks S&P 500 composite over the past year.

The industry has gone up 24.7% over this period compared with the broader sector’s increase of 17%. Meanwhile, the S&P 500 has gained 16.8%.

One-Year Price Performance

Industry's Current Valuation

Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of noncash expenses.

On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA), the industry is currently trading at 5.05X, significantly lower than the S&P 500’s 17.20X. It is also below the sector’s trailing 12-month EV/EBITDA of 6.07X.

Over the past five years, the industry has traded as high as 6.91X and as low as 1.77X, with a median of 3.61X, as the chart below shows.

Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio (Past Five Years)

 

3 Stocks in Focus

Phillips 66: Headquartered in Houston, TX, Phillips 66 is among the world’s largest independent refiners and operates as a broad-based energy company. Its businesses range across refining, marketing, midstream operations and petrochemicals, supported by nearly 2 million barrels per day of refining capacity in the United States and Europe. The Zacks Rank #3 (Hold) company distributes fuels through thousands of retail outlets worldwide and owns a 50% stake in Chevron Phillips Chemical. Since its 2012 spin-off from ConocoPhillips, Phillips 66 has focused on combining scale with disciplined, strategic expansion.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Phillips 66’s expected EPS growth rate for three to five years is currently 25%, which compares favorably with the industry's growth rate of 14%. The company beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other, the average being 16.3%. Shares of the company have gained 21.6% in a year.

Price and Consensus: PSX

Marathon Petroleum: It is a major independent refiner, transporter and marketer of petroleum products. Marathon Petroleum benefits from access to lower-cost crude sourced from the Permian, Bakken and Canada, which supports strong margins. This Zacks Rank #3 company’s powerful cash flow generation, paired with its consistent and sizable shareholder returns, remains a central factor driving investor confidence and supporting the stock’s long-term upside.

Findlay, OH-based Marathon Petroleum has a market capitalization of more than $60 billion. MPC beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other. The Zacks Consensus Estimate for Marathon Petroleum’s 2026 earnings per share indicates 18.8% year-over-year growth. Shares of MPC have gained 31.5% in a year.

Price and Consensus: MPC

Valero Energy: Valero Energy, founded in San Antonio in 1980, is one of the world’s largest independent refiners. The company operates 15 refineries across the United States, Canada and the United Kingdom, with a combined throughput of about 3.2 million barrels per day. Its facilities produce gasoline, diesel, jet fuel, heating oil and other refined products sold across North America, Europe and parts of Latin America.

Beyond refining, Valero has a sizable renewables footprint. It owns 12 ethanol plants in the U.S. Midwest with a capacity of roughly 1.7 billion gallons per year. It holds a 50% stake in Diamond Green Diesel, North America’s largest renewable diesel producer, which also makes sustainable aviation fuel. The Zacks Consensus Estimate for 2026 earnings of Valero indicates 15.7% growth. It beat the Zacks Consensus Estimate for earnings in each of the last four quarters, with the average being 45.4%. This #3 Ranked company’s shares have increased 47.1% in a year.

Price and Consensus: VLO

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Phillips 66 (PSX): Free Stock Analysis Report
 
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This article originally published on Zacks Investment Research (zacks.com).

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