The Zacks Oil and Gas - Refining & Marketing industry is standing at a crossroads. On paper, things look solid—refined product inventories are tight, demand for gasoline and diesel is up, and long-term fundamentals remain constructive. Yet, refining margins tell a different story. Despite favorable supply-demand dynamics, market sentiment remains shaky. Concerns around economic slowdown and regulatory uncertainty, particularly in renewable diesel, have weighed on valuations and earnings expectations. Still, not all is gloom. U.S. refiners enjoy structural advantages like domestic crude access and low-cost inputs. And four names — Marathon Petroleum MPC, Phillips 66 PSX, Valero Energy VLO and Galp Energia GLPEY — stand out with strong assets, smart capital allocation, and long-term positioning that could reward patient investors.
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Industry Overview
The Zacks Oil and Gas - Refining & Marketing industry consists of companies involved in selling refined petroleum products (including heating oil, gasoline, jet fuel, residual oil, etc.) and a plethora of non-energy materials (like asphalt, road salt, clay and gypsum). Some companies also operate refined product terminals, storage facilities and transportation services. The primary activity of these firms involves buying crude/other feedstocks and processing them into a wide variety of refined products. Refining margins are extremely volatile and generally reflect the state of petroleum product inventories, demand for refined products, imports, regional differences and capacity utilization in the industry. Other major determinants of refining profitability are the light/heavy and sweet/sour spreads. Refiners are also prone to unplanned outages.
3 Trends Defining the Oil and Gas - Refining & Marketing Industry's Future
Margin Compression Despite Healthy Fundamentals: Despite low inventories and solid demand trends, refining margins have lagged expectations. Fundamentals appear strong — diesel and gasoline demand are up year over year, and inventory levels are tight — yet refining margins have remained muted. This disconnect may reflect broader macroeconomic concerns, such as the risk of a slowdown or recession, which is weighing on investor sentiment. Refiners are operating in a cautious environment where markets are pricing in pessimism, even as supply-demand dynamics suggest tighter conditions.
Tough Market and Policy Uncertainty Weigh on Renewable Diesel: The shift from the Blenders’ Tax Credit (BTC) to the Production Tax Credit (PTC) has made renewable diesel less profitable. Many producers are seeing lower returns due to feedstock qualification issues and unclear policy direction — especially with possible changes to California’s Low Carbon Fuel Standard (LCFS) rules. As a result, output is being cut, and a recovery will likely depend on a strong rebound in renewable fuel credits or clearer regulatory support, both of which are uncertain right now.
Fundamentals Support Long-Term Refining Outlook: The refining industry appears well-positioned for an improved mid-cycle environment, supported by long-term fundamentals and structural advantages in the U.S. market. Marathon Petroleum expects global demand growth for refined products to persist, even as some 800,000 barrels per day of capacity is set to come offline across the U.S. and Europe. In parallel, U.S. refined product inventories remain below five-year averages, setting a favorable tone for margin expansion. Add to this the U.S. refining sector's locational advantage—easy access to domestic crude, low-cost natural gas and butane, and a flexible asset base—and it paints an encouraging picture for U.S. refiners.
Zacks Industry Rank Indicates Bearish Outlook
The Zacks Oil and Gas - Refining & Marketing is a 13-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #139, which places it in the bottom 43% of 245 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. As a matter of fact, while the industry’s earnings estimate for 2025 has gone down 38.3% in the past year, the same for 2026 has fallen 19.7% over the same timeframe.
Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms Sector & S&P 500
The Zacks Oil and Gas - Refining & Marketing industry has fared worse than the broader Zacks Oil - Energy Sector as well as the Zacks S&P 500 composite over the past year.
The industry has gone down 16.9% over this period compared with the broader sector’s decrease of 8.2%. Meanwhile, the S&P 500 has gained 12.5%.
One-Year Price Performance
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of noncash expenses.
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA), the industry is currently trading at 3.76X, significantly lower than the S&P 500’s 16.65X. It is also below the sector’s trailing 12-month EV/EBITDA of 4.59X.
Over the past five years, the industry has traded as high as 6.95X and as low as 1.79X, with a median of 3.60X, as the chart below shows.
Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio (Past Five Years)
4 Stocks in Focus
Marathon Petroleum: It is a leading independent refiner, transporter and marketer of petroleum products. Marathon Petroleum's access to lower-cost crude in the Permian, Bakken, and Canada helps it benefit from the differentials. The Zacks Rank #3 (Hold) company’s exceptional cash flow generation and aggressive shareholder returns are the key drivers for stock price appreciation.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Findlay, OH-based Marathon Petroleum has a market capitalization of $48.7 billion. MPC beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. Shares of MPC have lost 9% in a year.
Price and Consensus: MPC
Phillips 66: Based in Houston, TX, Phillips 66 is a diversified and integrated energy company established following the 2012 spin-off of ConocoPhillips' downstream operations. As one of the world's leading refiners, Phillips 66 operates 13 refineries, primarily in the United States, with a total refining capacity of 2.2 million barrels per day.
Phillips 66 beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other, the average being 10.6%. Shares of this Zacks Rank #3 company have lost 19% in a year.
Price and Consensus: PSX
Valero Energy: San Antonio, TX-based Valero Energy is the largest independent refiner and marketer of petroleum products in the United States. The company has a refining capacity of 3.2 million barrels per day across 15 refineries located throughout the United States, Canada and the United Kingdom.
Valero Energy beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other, the average being 122.9%. Shares of this Zacks Rank #3 company have lost 18% in a year.
Price and Consensus: VLO
Galp Energia: It is a Portuguese integrated energy firm with a significant presence in the downstream segment. The company’s Refining and Marketing unit is responsible for the supply and trade of oil and biofuels, and the operation of oil and gas refineries. It operates two refineries in Portugal.
GLPEY, based in Lisbon, has a four-quarter average earnings surprise of 56.8%. The firm has a market capitalization of $11.3 billion. This #3 Ranked company’s shares have decreased 25% in a year.
Price and Consensus: GLPEY
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