U.S. oil-refinery stocks are up roughly 150% this year. How long could this historic run last?

By Myra P. Saefong

Analyst predicts the 'mother of all maintenance seasons' for refineries that have been running at high capacity

Marathon Petroleum's Los Angeles refinery. U.S. oil refineries have been running at historically high rates, with refinery utilization at 92.8% for the week ended Oct. 23.

U.S. oil refiners have been big beneficiaries of the Iran war's global disruptions to oil and refined-product supplies, putting a key benchmark index for the sector on track to notch its best year on record. But there are signs that the rally may soon start to unwind.

There is "far too much optimism for a 'post-midterm rally'" in the refining sector, wrote Jonathan Krinsky of BTIG, in a note Tuesday.

The S&P 500 Oil & Gas Refining & Marketing Index XX:SP500.10102030 is on pace for its best year in the past three decades, outpacing the previous record-high performance year by nearly double, said Krinsky. "At a minimum, we should expect consolidation, but more likely some significant downside reversion."

The index was up 157% year to date as of Monday, according to Dow Jones Market Data, and was headed for its best year ever, based on data going back to 1996.

Krinsky's cautious view on refiners came as the index sank 7.9% on Tuesday, its largest one-day percentage decline since April 2025.

The extraordinary performance for America's refiners this year has "turned one of the market's most successful investments into something resembling a crowded theater where everybody is beginning to wonder how wide the exits really are," said Stephen Innes, managing partner at SPI Asset Management.

Elevated product margins - the gross profit from refined fuel - and the persistent shortage of refining capacity have been entirely legitimate reasons to own refining stocks, but there comes a point when the "fundamental story can remain constructive while the equity trade itself becomes exhausted," he wrote Wednesday in his newsletter, the Dark Side of the Boom.

The companies in the S&P 500 Oil & Gas Refining & Marketing index have seen significant gains, with shares of Marathon Petroleum Corp. (MPC) up 168%, of Valero Energy Corp. (VLO) up 136% and of Phillips 66 (PSX) up 109% in 2026 as of Wednesday afternoon, according to FactSet data.

Where refining stocks go from here will hinge largely on the outlook for refining margins, said Pavel Molchanov, investment-strategy analyst at Raymond James.

Those margins have been boosted by the refinery disruptions in the Persian Gulf and Russia, he said. "Either of these geopolitical situations would be needle-moving by itself, and the combination of the two is especially potent."

The VanEck Oil Refiners exchange-traded fund CRAK, meanwhile, has gained about 64% so far this year, after marking a decline of 3.7% on Tuesday, the largest drop since April 2025. That fall put the ETF 8.8% below its record close of $68.15, reached just two weeks earlier.

The recent selloff in refining stocks looks largely like a "repricing of exceptionally strong refining margins," said Salih Yilmaz, senior energy equity-research analyst at Bloomberg Intelligence.

Refiners' shares had risen very sharply this year as product shortages pushed crack spreads - the difference between the wholesale price of crude and the market price for refined petroleum - to extreme levels, he said.

So signs of normalization may have been enough to trigger some profit-taking, said Yilmaz.

Signs of normalization?

That "normalization" includes recovering Russian refinery runs and the easing of restrictions on Russian diesel, he said.

Strategists at J.P. Morgan, led by Natasha Kaneva, said there haven't been any confirmed attacks on Russian refining infrastructure since Oct. 15, and that's allowed Russian refinery runs to rebound by 350,000 barrels per day last week, to 4 million barrels per day.

But despite signs of normalization in the refining sector, Yilmaz said he doesn't necessarily expect a straight-line decline from here because product markets remain tight and geopolitical risks are still significant.

Refiners can still earn very strong profits even if crack spreads fall from exceptional levels, he said. On Wednesday, the futures price for reformulated gasoline (RB00) was around $3.15 a gallon, or $132 a barrel. That's $30 above the futures price of $102 for a barrel of U.S. benchmark West Texas Intermediate crude (CL.1).

'Mother of all maintenance seasons'

The moves in refining stocks certainly warrant caution among investors given the "epic" price increases, Tom Kloza, chief energy adviser at Gulf Oil, told MarketWatch.

In terms of energy, however, he also said he "can't think of any segment of the business that looks more prosperous in 2027 than U.S. refiners."

There will be perhaps the "mother of all maintenance seasons" in the second quarter of 2027, Kloza said, suggesting that could impact output.

U.S. refineries have been running at historically high rates, with refinery utilization at 92.8% for the week ended Oct. 23, according to the Energy Information Administration. That compares to 86.6% a year ago.

Kloza expects gasoline prices to see a seasonal decline, which may "spark all sorts of conjecture about refiners making too much gasoline when there isn't demand for it."

But by next spring, Kloza said he wouldn't be surprised to see gasoline fetching $50 a barrel or more over crude, noting Wednesday that the April 2027 reformulated gasoline contract was trading at about $41 a barrel above WTI.

Bloomberg Intelligence's Yilmaz, meanwhile, said that if refining margins continue to normalize, that should eventually translate into some relief for wholesale and retail fuel prices. Retail prices for diesel climbed to a record high last month and gasoline prices are up more than 40% since the start of the U.S. and Israel's war with Iran.

Gasoline may respond more quickly, said Yilmaz, while diesel could remain comparatively supported through winter because inventories are still tight and middle-distillate supply remains constrained.

So I would expect "potential normalization rather than an immediate collapse in fuel prices," he said.

-Myra P. Saefong

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10-28-26 1616ET