Increasing Our FVEs for HF Sinclair, Phillips 66, Marathon and Valero on Strong Market Conditions

We have increased our fair value estimates for the independent refiners under our coverage. After our update, HF Sinclair trades at the largest discount at 0.92 price/fair value, followed by Phillips 66 (0.93), Marathon Petroleum (1.05), and then Valero (1.16). Shares have performed strongly, up an average of 30% year to date given strong demand and improved margins. U.S. refiners have been a beneficiary of the fallout from the Russian invasion of Ukraine as restrictions on Russian crude and product exports have resulted in tight global product inventories, particularly distillate. Also, higher global natural gas prices, a key input to the refining process, have improved U.S. refiners’ relative competitiveness even as domestic natural gas prices have soared to their highest level in almost 14 years. Operating cost is relative and we expect the U.S. to remain at the low end of the cost curve even as it shifts higher globally. Meanwhile, RIN prices have waned since the start of the year, relaxing a headwind of the last few years. Our moat ratings are unchanged.