Key Highlights

  • US refining stocks, including Valero Energy (NYSE:VLO), Phillips 66, Marathon Petroleum and PBF Energy, declined on November 10, 2026, extending a pullback from mid-October highs.
  • The benchmark 3-2-1 crack spread, which measures the Margin from turning three barrels of crude into two of gasoline and one of diesel, fell to about USD 44 a barrel from a peak near USD 75 in September, a drop of about 40%.
  • Refiners had reached record share prices in September when the conflict with Iran and refinery outages pushed product margins to extreme levels.
  • Recovering Gulf crude Supply has eased product prices, while Ukrainian strikes on Russian refineries provide partial support for diesel margins.

What Happened to Margins

Refining margins were among the biggest beneficiaries of the supply shock earlier this year. As the conflict with Iran disrupted Gulf exports and refinery capacity was lost in several regions, prices for gasoline and diesel rose faster than crude. The 3-2-1 Crack Spread peaked near USD 75 a barrel in mid to late September, an unusually high level that allowed US refiners to earn exceptional profits. Since then, conditions have normalised. Saudi Arabia and Iraq have restored output to pre-war levels, OPEC+ production jumped about 2.04 million barrels a day in October, and product inventories have rebuilt. By November 10 the 3-2-1 spread stood at about USD 44, roughly 40% below its peak. Valero Energy (NYSE:VLO), the largest independent US refiner, and peers including Phillips 66, Marathon Petroleum, PBF Energy, Delek and HF Sinclair all declined on the day as investors reset Earnings expectations to a lower margin environment.

Why USD 44 Is Still Healthy

The decline needs perspective. A crack spread of around USD 44 a barrel is still well above the levels that prevailed for much of the past decade, when spreads in the USD 15 to USD 30 range were common. US refiners run complex plants that can process heavy and discounted crude, which lifts their realised margins above the benchmark. Their cost base also benefits from relatively cheap domestic natural gas. That means fourth-quarter earnings should remain strong in absolute terms, even if they fall short of third-quarter peaks. For Valero Energy (NYSE:VLO), which has prioritised Buybacks and dividends during the boom, Cash Flow at these margins still supports Shareholder returns. The share price reaction reflects the change in direction rather than the level: investors typically pay a premium when margins are rising and de-rate the group when they turn lower, regardless of the absolute number.

What to Watch From Here

Three variables will determine the next move. First, the Strait of Hormuz: Iran says it will stay closed until its demands are met, and any escalation could reverse the fall in product margins. Second, Russian supply: Ukrainian drone strikes have disrupted about 30% of Russia's refining capacity, which tightens global diesel markets heading into winter. Third, US demand: retail gasoline has eased below USD 4 a gallon, which may support driving demand, but rising interest rates and a slower economy could weigh on freight and industrial fuel use. For investors in Valero Energy (NYSE:VLO) and its peers, weekly inventory data, crack spread trends and maintenance schedules are the key near-term indicators. A stabilisation of the 3-2-1 spread above USD 40 would likely mark the end of the current de-rating phase.

Where Things Stand

Refining stocks including Valero Energy (NYSE:VLO) fell on November 10, 2026 as the 3-2-1 crack spread dropped to about USD 44 a barrel, roughly 40% below its September peak near USD 75. Recovering Gulf supply has eased product prices, though margins remain high by historical standards and Russian refinery outages support diesel. Hormuz, Russian supply and US Demand will shape whether the group stabilises.