US refining stocks are rallying at full speed. The country’s two largest refiners, Marathon Petroleum Corporation (NYSE:MPC) and Valero Energy Corporation (NYSE:VLO) have both more than doubled in value since the beginning of 2026. The impressive gains are driven by an unusually sharp surge in global refining margins as the ongoing disruptions have significantly reduced the global refining capacity and tightened supplies of gasoline, diesel, and jet fuel.
It is also worth noting that the situation extends beyond the conflict in the Middle East. While the region’s refining output remains well below pre-war levels, a recent series of Ukrainian attacks on oil refineries in Russia has further constrained global supplies, pushing prices higher for consumers who were already grappling with inflationary pressures.
As a result, Marathon and Valero delivered combined profits of around $8.8 billion in the second quarter of 2026, comfortably topping Wall Street expectations. While there are now investor concerns that the American refining giants may have topped out, a report by Barron’s on August 21 indicates otherwise, suggesting that the US refiners may still have more steam left.
The Refining Boom Could Have Much Further to Run:
A key bullish case for the two refiners is that the strong refining margins may persist to some extent even if the US-Iran war fades. A wave of refinery closures and conversions in Europe and the United States has permanently reduced global capacity, while fuel demand remains resilient. Even if a peace deal is achieved and crude prices normalize, the limited refining capacity could continue to support the high gasoline and diesel margins.
Valero is especially well-positioned to capitalize on the tight European fuel markets, as according to the company’s COO, Gary Simmons, an arbitrage opportunity has reopened for jet fuel exports to the continent, creating an additional market for Valero’s output. The firm also expects jet fuel margins to improve over the remainder of the third quarter as refiners switch to winter diesel specifications.
At the same time, Marathon Petroleum also presents a compelling investment case. As the largest refiner by volume in the United States, the company has significant operating leverage when crack spreads expand. Marathon doubled its refining margins in the second quarter, helping drive an almost four-fold increase in its profits.
Another major growth catalyst for Marathon is its approximate 64% ownership in MPLX, which owns and operates midstream energy infrastructure. This provides the refining giant with significant exposure to a diversified midstream infrastructure business with relatively stable cash flows that can help offset the cyclicality of the refining business.
Both refiners also remain focused on growing their shareholder returns, further adding to their appeal. According to TD Cowen’s Jason Gabelman, Marathon and Valero are expected to repurchase about 20% of their market value between Q3 and the end of next year, providing a potential boost to their per-share earnings.
Massive Rallies Raise the Stakes:
A major risk for Marathon Petroleum and Valero Energy is that investors may be assuming that the current exceptionally strong refining margins will persist for long. It is important to keep in mind that the unusually high profits recently posted by both refiners were a result of extraordinary market conditions, and crack spreads could normalize quickly if the global refined product supplies recover.
This risk is particularly important because both stocks have already enjoyed enormous rallies and significantly outperformed the wider market. As of the writing of this piece, Valero has surged by 111% while Marathon has posted gains of over 118% since the beginning of 2026, so even a modest decline in refining margins could trigger a significant valuation correction.
Conclusion:
Both Marathon and Valero offer compelling near-term prospects, supported by the soaring refining margins and the strong recent earnings, which showed that the benefits are already flowing through to cash flows and shareholder returns. However, following their strong rallies, investors should consider how much of the ongoing refining boom is already priced into their valuations and how sustainable these extraordinarily high margins will be.
Market Sentiment:
Marathon Petroleum Corporation (NYSE:MPC) was held by 58 hedge funds with a cumulative investment value of almost $1.7 billion at the end of Q2 2026 in the Insider Monkey database. This compares to 81 hedge fund investors boasting a total stake value of over $2.85 billion for Valero Energy Corporation (NYSE:VLO).
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Disclosure: None. This article is originally published at Insider Monkey.
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