Zacks Industry Outlook Valero, Murphy and Galp Energia

Core Viewpoint - The Zacks Oil and Gas - Refining & Marketing industry is facing declining fuel margins and rising costs due to inflation, but strong demand for gasoline and distillates may provide some support for refiners [1][2][5]. Industry Overview - The industry includes companies that sell refined petroleum products and non-energy materials, and some operate terminals and transportation services [3]. - The primary activity involves processing crude oil into various refined products, with refining margins being highly volatile and influenced by several factors including inventory levels and demand [4]. Trends Defining the Industry's Future - Refining Margins Under Pressure: Refining margins have weakened from 2022 highs, with crack spreads narrowing due to lower refined product prices relative to crude oil. Elevated inventories and demand uncertainties are additional risks [5]. - Refiners Poised for Growth Amid Rising Product Demand: Strong demand for gasoline and diesel is driven by travel and mobility, with gasoline inventories slightly below the five-year average and distillate stocks 9% lower [6][7]. - Supply-Chain Challenges: The industry faces supply-chain disruptions and cost inflation, limiting refiners' ability to deliver volumes and impacting profitability [8]. Industry Performance - The Zacks Oil and Gas - Refining & Marketing industry ranks 205, placing it in the bottom 18% of over 250 Zacks industries, indicating dull near-term prospects [9][10]. - The industry's earnings estimate for 2024 has decreased by 20.9% over the past year, with a decline of 8.6% for 2025 [11]. Comparative Performance - The industry has underperformed compared to the broader Zacks Oil - Energy Sector and the S&P 500, with a decline of 2.9% over the past year versus a 27.5% gain for the S&P 500 [13]. Current Valuation - The industry is currently trading at an EV/EBITDA ratio of 3.55X, lower than the S&P 500's 18.90X but above the sector's 3.09X [15]. Stocks in Focus - Galp Energia: A Portuguese integrated energy firm with a market capitalization of $14.5 billion and a four-quarter average earnings surprise of 64.3$10.8 billion, benefiting from its proximity to Walmart supercenters [21].