Valero Energy Corporation (VLO): Has The Company Already Seen Its Best Days?

Yet Valero and its peers have seen new challenges pop up recently. Price spreads between U.S. West Texas intermediate and European Brent crude oil have narrowed considerably in April, threatening those wide margins. That’s especially bad news for HollyFrontier Corp (NYSE:HFC), Tesoro Corporation (NYSE:TSO), and Valero Energy Corporation (NYSE:VLO), whose western-U.S. exposure has helped those companies benefit the most from cheap mid-continent crude supplies. Phillips 66 (NYSE:PSX)’s recent deal to transport U.S. crude by rail may look a lot less lucrative if spreads narrow further, and Valero and the rest of the industry will inevitably see profits shrink if the financial incentive to export gasoline gets smaller.

Valero could also feel a big hit from regulation. Ethanol credits that Valero and other refiners are required to obtain have soared in cost lately, raising fears that the mandate for higher ethanol use will lead to higher prices at the pump for consumers and a big decrease in gasoline consumption from refiners. Meanwhile, proposed new EPA regulations to reduce sulfur, nitrogen oxide, and benzene levels in gasoline would require massive capital investment from refiners in order to comply.

In Valero Energy Corporation (NYSE:VLO)’s quarterly report, watch for how the refiner addresses all of these challenges. After having earned so much for so long, any hint that Valero could have seen the end of its growth phase could add to the stock’s recent troubles.

The article Has Valero Already Seen Its Best Days? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned.

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