Global refining margins and forward curves rise week over week

Overview

This report is Jefferies' weekly indicators update on global refining and refined-products marketing. Its core content includes spot crack spreads, forward curves, US and Chinese refinery utilization, refined-products demand, and valuation and risk commentary for refining companies including MPC, PSX, and VLO. The report concludes that refining margins improved overall this week and that forward curves also rose from the prior week and the same period last year.

Core views

The core view is that refining margins remain in a strong range: Jefferies' global composite margin increased, while key 321 cracks including USGC Cushing, WC ANS, Mid-Con, NWE Dated Brent GC, and Asia Minas all recorded week-over-week gains. Meanwhile, US refinery utilization remained high, supporting supply-side activity; however, declining US gas-station traffic indicates that end-market demand still requires monitoring.

Analysis framework

The report primarily uses a weekly market-data tracking framework, comparing current crack spreads with those of one week earlier, quarterly averages, the same period last year, three-year averages, and five-year averages. It also assesses industry and individual-stock risk/reward using refinery utilization, refined-products demand tables, Jefferies' proprietary gas-station traffic data, and company DCF valuation assumptions.

Methodology notes

• commodity_margin_tracking321 crack spread analysis

  321 crack spread

  Measures refinery processing margins through the price relationship between crude oil and refined products such as gasoline and diesel, serving as a key indicator of short-term earnings elasticity in the refining industry.

• market_curve_analysisForward curve comparison

  forward curve

  Observes changes in market pricing for future refining margins by comparing front-month, three-month, and six-month forward crack spreads.

• Valuation methodsDCF valuation

  discounted cash flow

  The report discloses that MPC and PSX use a 7.4% WACC for DCF valuation, while VLO uses a 6.9% WACC.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Marathon Petroleum Corporation (MPC)

  Refining-margin beneficiary

  Strengths

  The report discloses a BUY rating and values the company using a DCF with a 7.4% WACC; stronger margins support its refining business.

  Weaknesses

  Disclosure of investment-banking service relationships may raise concerns about conflicts of interest.

  Comparison

  More positively rated than PSX; rated BUY alongside VLO.

  Risks

  Recession-driven pressure on demand and margins, and inflationary pressure.

• Phillips 66 Company (PSX)

  Refining and marketing-related company

  Strengths

  Improved operating efficiency could lead to better capture rates and returns.

  Weaknesses

  The report discloses a HOLD rating, reflecting greater caution than for MPC and VLO.

  Comparison

  Rated below MPC and VLO.

  Risks

  Rodeo permitting delays and demand- and recession-related macroeconomic uncertainty.

• Valero Energy Corporation (VLO)

  Refining-margin beneficiary

  Strengths

  The report discloses a BUY rating and values the company using a DCF with a 6.9% WACC.

  Weaknesses

  Sensitive to energy costs, policy-credit prices, and feedstock prices.

  Comparison

  Rated BUY alongside MPC and more positively than PSX.

  Risks

  Recession-driven demand destruction, higher natural gas prices, LCFS and RIN price volatility, and higher DGD feedstock costs.

Key data

• Jefferies global composite four-week moving-average margin+6% w/wThe report cover states that the global composite four-week moving-average margin increased 6% week over week.
• USGC Cushing 321 margin+10% w/wThe report cover shows that the USGC Cushing 321 margin increased 10% week over week.
• Mid-Con 321 margin+13% w/wThe report cover shows that the Mid-Con 321 margin increased 13% week over week.
• Asia Minas 321 margin+22% w/wThe report cover shows that the Asia Minas 321 margin increased 22% week over week.
• Overall US refinery utilization96.2%As of 2026-07-10, overall US refinery utilization was 96.2%, above the 2026 average of 92.5% and the three-year average of 90.8%.
• US gas-station trafficapproximately -4% y/y; approximately -2.4% y/y on a rolling three-month basisJefferies' proprietary US gas-station traffic data indicated a year-over-year decline in May.
• MPC valuation assumptionDCF, WACC 7.4%Downside risks include demand and margins being adversely affected by a recession, as well as inflationary pressure.
• PSX valuation assumptionDCF, WACC 7.4%Downside risks include delays in Rodeo permitting and demand/recession-related macro uncertainty; upside risks stem from improved operating efficiency.
• VLO valuation assumptionDCF, WACC 6.9%Risks include recession-driven demand destruction, higher natural gas prices, LCFS and RIN price volatility, and higher DGD feedstock costs.

Impact & implications

Simultaneous strengthening in margins and forward curves is generally positive for near-term earnings expectations for refining companies, particularly MPC and VLO, which are sensitive to crack spreads. However, weaker demand-side traffic, macroeconomic recession risks, and operational/regulatory risks may still limit the scope for share-price re-rating.

Risks

• Weaker end-market demand: US gas-station traffic declined approximately 4% year over year in May.
• A macroeconomic recession could suppress refined-products demand and refining margins.
• Volatility in natural gas, crude oil, and other feedstock prices could increase costs and compress margins.
• Volatility in policy-credit prices such as LCFS and RINs could affect the earnings of companies including VLO.
• Jefferies discloses that it has or is seeking investment-banking business relationships with some covered companies, so investors should consider potential conflicts of interest.

What to watch

• Whether crack spreads in the USGC, Mid-Con, West Coast, Northwest Europe, and Asia continue to rise.
• Changes in the front-month, three-month, and six-month WTI Cushing 321 forward curves.
• Whether overall US refinery utilization and PADD-level utilization remain high.
• US gasoline, diesel, jet-fuel, and propane/propylene demand data.
• Whether Jefferies' gas-station traffic continues to weaken year over year and on a rolling three-month basis.