Core Insights - The energy composite, which includes various energy commodities, experienced a decline of 7.06% in Q4 and is projected to be 10.99% lower in 2025 [1] - Crude oil prices fell significantly in Q4 and are expected to continue declining into 2025, while natural gas prices showed an upward trend [2][3] Crude Oil Market - Nearby NYMEX crude oil futures dropped by 7.94% in Q4 2025, influenced by seasonality and increased production [3] - NYMEX WTI crude oil prices decreased by 19.34% in 2025, closing at $57.42 per barrel, with early 2026 prices around $59 per barrel [4] - ICE Brent crude oil prices fell by 9.41% in Q4 and 18.49% in 2025, settling at $60.84 per barrel by the end of 2025, with early 2026 prices exceeding $63 per barrel [5] Oil Products and Crack Spreads - Gasoline prices fell more sharply than heating oil prices in Q4, with NYMEX gasoline futures down 13.07% in Q4 and 14.64% lower in 2025, while heating oil futures dropped 9.05% in Q4 and 8.41% in 2025 [6] - The gasoline crack spread decreased by 21.06% in Q4 but increased by 13.98% in 2025, while the distillate refining spread fell by 9.32% in Q4 and rose by 24.78% in 2025, indicating improved refinery earnings [7]

Market Dynamics - Crude oil prices are influenced by global supply disruptions, OPEC decisions, and macroeconomic factors [1] - Gasoline prices are affected by regional markets, refining costs, crack spreads, and local factors like transportation, taxes, and environmental regulations [2] Cost and Pricing Factors - Gasoline prices incorporate refining costs and the profit margin from processing crude [2] - US gasoline requires seasonal blends, with summer formulations being more expensive to produce [2][3] - Retail gasoline includes fixed taxes, about 18% federally plus state variations, which insulate it from crude oil volatility [3] Inventory and Demand - Ample crude stockpiles can depress oil prices, while low gasoline reserves amid high driving demand raises pump prices [3] Structural Differences - Crude oil is a globally traded commodity, while gasoline is a refined product with regional markets [1][2] - These layers create lags and mismatches allowing opposite movement despite crude being gasoline's primary input [3]

Group 1 - Valero Energy (NYSE: VLO) is expected to have a strong quarter due to improving crack spreads and increased utilization of its refinery assets [1] - The company is positioned to continue stock buybacks as a result of its favorable operational performance [1]