Detailed narrative
Operational Excellence & Records
Valero achieved its best year for personnel safety and environmental performance in 2025, building on prior records from 2024. This commitment translated into record refining throughput and ethanol production for both Q4 and the full year, alongside a record for mechanical availability. These accomplishments highlight the hard work and dedication of the entire team.
Refining Fundamentals & Outlook
Refining margins in Q4 2025 were favorable, driven by strong product cracks and widening sour crude discounts. Management expects continued demand growth and a tight supply environment, with limited capacity additions, to support refining fundamentals. Sour crude differentials are anticipated to benefit from increased Canadian crude production and additional Venezuelan crude supply into the U.S.
Capital Allocation & Shareholder Returns
The company remains committed to its disciplined capital allocation framework, prioritizing balance sheet strength (net debt-to-cap at 18%, cash at $4.7 billion) and shareholder returns. Shareholder cash returns totaled $1.4 billion in Q4 2025 (66% payout ratio) and $4 billion for the full year (67% payout ratio), contributing to a 5% reduction in share count in 2025 and 42% since 2014. The Board approved a 6% increase to the quarterly cash dividend.
Renewable Diesel Market Dynamics
The renewable diesel segment saw lower operating income in Q4 2025 compared to the prior year. The industry is awaiting final policy guidance on RVO and PTC. Valero believes it is well-positioned to capture PTC benefits due to its low carbon intensity and ability to process waste oils, expecting 2026 to be stronger than 2025 for the segment, particularly for those exporting to advantaged markets and running waste oils.
Heavy Crude & Coker Utilization
Valero has historically been a large processor of Venezuelan heavy crude, running as much as 240,000 barrels per day. The new coker project at Port Arthur, installed in 2023, has substantially increased its processing capability. With increased availability of Venezuelan and Canadian heavy crude, Valero expects to fill cokers with a heavier crude diet sooner, optimizing utilization and potentially increasing crude rates. OPEC increases of 2.9 million barrels since April last year and growing sour crude production in the U.S. Gulf (over 2 million bpd, up 200,000 bpd YoY) are contributing to wider sour crude discounts.
West Coast Operations & Benicia Shutdown
West Coast refining profitability was impacted by weak gasoline cracks relative to diesel and a retroactive tariff adjustment on a pipeline. Valero is executing a phased shutdown of its Benicia refinery process units in February 2026 due to mandatory inspection requirements. The company will continue to produce fuel from inventory and import blend components to meet supply obligations, while the Wilmington refinery will continue normal operations. The company's strategic CapEx for refining is fairly stable around $300 million annually, down from a COVID-era $0.5 billion, and Alky project costs have risen from $350-$400 million to $600 million due to inflation.
Refinery Utilization and Demand Outlook
Refinery utilization reached 95.4% in December, contributing to a significant build in light product inventory, mainly in PADD 3. While domestic demand was good, with gasoline sales flat and distillate up 13% year-over-year, consultants project lower utilization for 2026. Valero's outlook is more bullish than consultants due to high execution risk on new capacity and Russian refining assumptions. Domestic demand was soft in early January due to weather, with sales recovering to 90% of normal last week.