Valero Energy Corporation (VLO) refines North American crudes in its Gulf Coast and mid-Continent refineries, benefiting from the large discount of domestic crude prices relative to international crudes and having a competitive advantage over refiners paying international market prices for their raw materials, says Jonathan S. Vyorst, Senior Vice President at Paradigm Capital Management, Inc.
“Valero is interesting because there is currently a large supply of oil being produced in the United States and Canada that sells for a substantial discount to oil sold on international markets. To give you a sense of the discount, in the fourth quarter, the differential between West Texas Intermediate and Brent crude was over $20 per barrel,” Vyorst said.
Valero is the largest independent refiner in the United States, and Vyorst says the domestic focus shift is changing the nature of the petrochemical and refinery industries in the United States.
“U.S. refiners benefit from that because they can buy oil locally from domestic and Canadian producers and then sell it as refined products, such as diesel or jet fuel, to customers in Latin America and even Europe. In the fourth quarter, for the first time ever, Valero bought all of the light oil it uses on the Gulf Coast from domestic producers,” Vyorst said.
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