Can Valero's refining system source all desired crude and run at full capacity given current market conditions?

Valero's Mid-Continent and Gulf Coast systems have ample crude availability, allowing for optimization of the crude slate. The company has increased Venezuelan crude purchases and is benefiting from wide discounts on Canadian heavy crude, indicating the ability to run at full capacity with desired feedstocks. “most of our systems is located kind of in the Mid-Continent and Gulf Coast. So crude availability is really not much of an issue.”

How is Valero maximizing jet fuel production, and are global jet availability concerns founded?

Jet fuel is "incredibly short." Valero is maximizing production, increasing jet as a percentage of total distillates from a typical 26% to over 30% in March. Efforts are underway to enable jet production at refineries that previously did not produce it to further increase yields. “Jet is incredibly short. We've been trying to maximize jet in our system”

What enables Valero's less volatile results, and how is the company thinking about its elevated cash position as a buffer?

Valero's proactive risk management, including maintaining inventory positions closer to LIFO, reduces derivative exposure and margin calls. The company moved to the high end of its $4 billion to $5 billion cash target to ensure liquidity and optionality, ending the quarter with almost $11 billion in total liquidity. “our cash balance, coupled with our bank facilities, we ended the quarter with almost $11 billion of total liquidity. So we're really well positioned for whatever the rest of the year brings.”

VLO

Valero Energy (VLO) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Energy· Apr 30, 2026

Source: earnings call transcript

Executive summary

Valero Energy Corp. Q1 FY26 — Strong Performance Amidst Commodity Volatility

Valero delivered a strong first quarter, leveraging its advantaged Gulf Coast refining network and operational flexibility to navigate significant commodity market volatility. The company maintained a robust balance sheet and continued its commitment to shareholder returns, while strategically investing in optimization projects and managing risk proactively. Management anticipates continued support for refining fundamentals due to constrained global capacity and low product inventories.

Highlights

Refining segment operating income reached $1.8 billion in Q1 FY26, a significant improvement from an operating loss of $530 million in Q1 FY25.
Adjusted net income attributable to Valero stockholders was $4.22 per share in Q1 FY26, up from $0.89 per share in Q1 FY25.
Shareholder cash returns totaled $938 million in Q1 FY26, resulting in a payout ratio of 59% for the quarter.
The Board approved a 6% increase to the quarterly cash dividend on January 22, reflecting a strong financial position.
Opportunistically issued $850 million of 10-year notes at a 5.15% coupon, pricing at a record low spread of 102 basis points over treasuries.

Concerns

The Port Arthur refinery experienced a fire in the diesel hydrotreater, causing a full refinery shutdown and extensive damage, with no timeline for rebuild.
Working capital had an unfavorable impact of $303 million in Q1 FY26.
Steep backwardation in the crude market is anticipated to be a headwind for Q2 capture rates.
The disconnect between physical markets and futures makes it complex to assess future capture rates.
VGO availability is expected to become an issue, as there appears to be insufficient supply to fill both FCC and hydrocracking capacity.

Guidance & targets

Category	Target	Timeline	Confidence
FCC unit optimization project operations start	Q3 2026 medium materiality	Q3 · FY26	High
2026 Capital Investment Guidance	Update pending medium materiality	FY26	Medium
Refining Throughput Volumes	1.69 million to 1.74 million barrels per day high materiality	Q2 · FY26	High
Refining Throughput Volumes	450,000 to 470,000 barrels per day high materiality	Q2 · FY26	High
Refining Throughput Volumes	120,000 to 130,000 barrels per day high materiality	Q2 · FY26	High
Refining Throughput Volumes	480,000 to 500,000 barrels per day high materiality	Q2 · FY26	High
Refining Cash Operating Expenses	$4.85 per barrel medium materiality	Q2 · FY26	High
Renewable Diesel Sales Volumes	320 million gallons medium materiality	Q2 · FY26	High
Renewable Diesel Operating Expenses	$0.46 per gallon medium materiality	Q2 · FY26	High
Ethanol Production Volumes	4.7 million gallons per day medium materiality	Q2 · FY26	High
Ethanol Operating Expenses	$0.39 per gallon medium materiality	Q2 · FY26	High
Net Interest Expense	$145 million low materiality	Q2 · FY26	High
Total Depreciation and Amortization Expense	$730 million medium materiality	Q2 · FY26	High
G&A Expenses	$960 million medium materiality	FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Refining Reported $1.8 billion of operating income for the first quarter of 2026 compared to an operating loss of $530 million for the first quarter of 2025. Adjusted operating income for Q1 2025 was $605 million. Throughput volumes: 2.9 million barrels per dayCash operating expenses: $5.13 per barrel	—	—	—	$1.8 billion operating income
Renewable Diesel Reported operating income of $139 million for the first quarter of 2026 compared to an operating loss of $141 million for the first quarter of 2025. Sales volumes: 3 million gallons per day	—	—	—	$139 million operating income
Ethanol Reported $90 million of operating income for the first quarter of 2026 compared to $20 million for the first quarter of 2025. Production volumes: 4.6 million gallons per day	—	—	—	$90 million operating income

VLO operating KPIs by quarter

VLO operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2024 Q4 FY24	Mar 2025 Q1 FY25	Sep 2025 Q3 FY25	Dec 2025 Q4 FY25	This call Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	Change vs prior quarter
Refinery throughput	3M bbl/d Refining throughput volumes in the fourth quarter of 2024 averaged 3 million barrels per day or 94% throughput capacity utilization. Source: earnings call transcript	2.8M bbl/d Refining throughput volumes in the first quarter of 2025 averaged 2.8 million barrels per day or 89% throughput capacity utilization. Source: earnings call transcript	3.1M bbl/d Refining throughput volumes in the third quarter of 2025 averaged 3.1 million barrels per day or 97% throughput capacity utilization. Source: earnings call transcript	3.1M bbl/d Refining throughput volumes in the fourth quarter of 2025 averaged 3.1 million barrels per day or 98% throughput capacity utilization. Source: earnings call transcript	2.9M bbl/d Refining throughput volumes in the first quarter of 2026 averaged 2.9 million barrels per day, refining cash operating expenses was $5.13 per barrel in the first quarter of 2026. Source: earnings call transcript	3M bbl/d Refining throughput volumes in the second quarter of 2026 averaged 3 million barrels per day. Source: earnings call transcript	+3.4%
Refinery utilization	94% Refining throughput volumes in the fourth quarter of 2024 averaged 3 million barrels per day or 94% throughput capacity utilization. Source: earnings call transcript	89% Refining throughput volumes in the first quarter of 2025 averaged 2.8 million barrels per day or 89% throughput capacity utilization. Source: earnings call transcript	97% Our refinery throughput utilization was 97% with the Gulf Coast and North Atlantic region setting new all-time highs for throughput following last quarter's record performance in the Gulf Coast. Source: earnings call transcript	98% Refining throughput volumes in the fourth quarter of 2025 averaged 3.1 million barrels per day or 98% throughput capacity utilization. Source: earnings call transcript	—	—	+1 pt
Capital expenditures Sustaining the business	$452M Regarding investing activities, we made $547 million of capital investments in the fourth quarter of 2024 of which $452 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance was for growing the business. Source: earnings call transcript	$582M Regarding investing activities, we made $660 million of capital investments in the first quarter of 2025, of which $582 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance was for growing the business. Source: earnings call transcript	$364M Regarding investing activities, we made $409 million of capital investments in the third quarter of 2025, of which $364 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance, and the balance was for growing the business. Source: earnings call transcript	$368M Regarding investing activities, we made $412 million of capital investments in the fourth quarter of 2025, of which $368 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance was for growing the business. Source: earnings call transcript	$404M Regarding investing activities, we made $448 million of capital investments in the first quarter of 2026, of which $404 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance looks for growing the business. Source: earnings call transcript	$290M Regarding investing activities, we made $350 million of capital investments in the second quarter of 2026, of which $290 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance was for growing the business. Source: earnings call transcript	-28.2%
Ethanol production volumes	—	4.5M gal/d Ethanol production volumes averaged 4.5 million gallons per day in the first quarter of 2025. Source: earnings call transcript	4.6M gal/d Ethanol production volumes averaged 4.6 million gallons per day in the third quarter of 2025, achieving record production. Source: earnings call transcript	4.8M gal/d Ethanol production volumes averaged 4.8 million gallons per day in the fourth quarter of 2025, also setting a quarterly and full year record. Source: earnings call transcript	4.6M gal/d Ethanol production volumes averaged 4.6 million gallons per day in the first quarter of 2026. Source: earnings call transcript	4.7M gal/d Ethanol production volumes averaged 4.7 million gallons per day in the second quarter of 2026. Source: earnings call transcript	+2.2%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Capital programs

FCC unit optimization project at St. Charles refinery underway $230 million

Benefit:enhance ability to produce high-value products

The $230 million initiative will enhance the ability to produce high-value products, including [indiscernible]. Expected to begin operations in Q3 2026.

Risks & headwinds

Commodity market disruption and volatility Q1 FY26

Considerable disruption in the commodity markets

Mitigation:Proactive management of commodity risk, adjusting product slate, optimizing refining system.

Port Arthur refinery incident March 23, 2026

Fire in the diesel hydrotreater; diesel hydrotreater sustained extensive damage

Mitigation:Full refinery shutdown as a precaution, investigation ongoing, smaller units restarted early April, larger units by May 1, kerosene hydrotreater back by Q3.

Steep backwardation in crude market Q2 FY26

Steep backwardation in the crude market is a headwind

Mitigation:Optimizing crude slate, increasing Venezuelan purchases, utilizing Canadian heavy crude discounts.

Physical markets disconnecting from futures Ongoing

Physical markets disconnect from the futures, making it complex to assess capture rates

Mitigation:Frequent daily review of positions, maintaining inventory closer to LIFO to reduce derivative exposure.

VGO availability issue Approaching driving season

VGO availability will start to become an issue; insufficient VGO to fill both FCC and hydrocracking capacity

Mitigation:Considering projects to increase commercial leverage and reduce dependency on VGO imports.

Jet fuel shortage Current

Jet is incredibly short

Mitigation:Maximizing jet production in the system (over 30% of distillates in March), enabling jet production at additional refineries.

Policy uncertainty for renewable diesel Longer-term

Everything that happens in that space is very dependent on how policy works out and how you can sort of survive from administration to administration.

Mitigation:Careful evaluation of policy before committing to projects like the SaaS project.

Global demand outpacing supply Current and several years ahead

Demand significantly outpacing supply; very little excess refining capacity globally

Mitigation:Leveraging high complexity refining assets, feedstock flexibility, and direct access to global markets.

Time to rebuild inventories 6-12 months

At least 6 months to a year to start restocking inventories back to where they were

Mitigation:Proactive inventory management to avoid short paper and derivative volatility.

Q&A highlights

Are there early signs of demand disruption given rising transportation fuel prices, and what is the outlook for global refining supply/demand?

Despite higher prices, domestic demand for transportation fuels remains resilient (gasoline flat to slightly up, diesel up, jet strong). The conflict in Iran has caused demand to significantly outpace supply, with very little excess global refining capacity, making it difficult to restock inventories even if the conflict resolves.

“the conflict in an has really created a market with demand significantly outpacing supply. We had very little excess refining capacity globally. So it's going to be difficult to restruck inventories even when the conflict is resolved.”

asked by Manav Gupta · answered by Gary Simmons

2 min read 7 chapters

Detailed narrative

Q1 Performance and Market Dynamics

Valero reported an excellent first quarter, with strong financial returns driven by the optimization of its refining system. The company successfully navigated significant commodity market disruption, benefiting from wider crude differentials early in the quarter due to incremental Venezuelan supply.

In March, as global crude and refined product markets tightened, Valero's operations team responded decisively, adjusting the product slate to reflect market signals and delivering a record month.

Strategic Projects and Asset Optimization

The company continues to advance strategic initiatives, including the $230 million FCC unit optimization project at its St. Charles refinery, which is expected to begin operations in Q3 2026 and will enhance the ability to produce high-value products. Valero also completed the idling of its Venetia refinery in April, which is reflected in Q2 throughput guidance and incremental depreciation, contributing to overall system optimization.

Financial Discipline and Capital Allocation

Valero maintained a strong balance sheet, ending Q1 FY26 with $5.7 billion in cash and $11 billion in total liquidity, positioning itself at the high end of its cash target range to preserve optionality in a volatile market. The company demonstrated its commitment to shareholder returns with $938 million in cash returns and a 6% dividend increase.

Additionally, Valero opportunistically issued $850 million in 10-year notes at a record low spread to derisk upcoming debt maturities.

Global Refining Outlook and Supply-Demand

Management anticipates continued support for refining fundamentals due to constrained global refining capacity and low product inventories in key markets. The recent conflict in Iran has exacerbated market tightness, with global demand significantly outpacing supply. Valero believes it will take a minimum of 6 months to a year to restock inventories to previous levels, even if the conflict resolves, due to limited excess refining capacity globally.

DGD and Ethanol Business Outlook

The DGD segment is expected to see higher profitability in Q2 compared to Q1, driven by strong RVOs, despite potential headwinds from mark-to-market on forward feedstock positions. The ethanol segment also performed well, benefiting from increased global demand as ethanol becomes a cheaper form of octane.

The company is investing in ethanol for incremental growth and yield improvements, with potential for future 45Z tax credit contributions.

Port Arthur Incident and Recovery

A fire at the Port Arthur refinery's diesel hydrotreater on March 23 led to a full refinery shutdown as a precaution. While the diesel hydrotreater sustained extensive damage with no rebuild timeline, the operations team successfully restarted smaller crude units, coker, hydrocrackers, reformer, and distillate hydrotreater by early April.

The larger crude unit, FCC, and alky are expected to be operational by May 1, normalizing throughput.

Crude Sourcing and Market Flexibility

Valero's Gulf Coast and Mid-Continent refining systems benefit from robust crude availability, allowing for optimization against volatile prices and freight costs. The company has increased Venezuelan crude runs since sanctions removal and is capitalizing on wide discounts for Canadian heavy crude. This feedstock flexibility and advantaged location enable Valero to navigate market volatility and maintain strong capture rates.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.