Goldman Sachs: Remains Bullish on Refining Industry Outlook; Valero Energy (VLO.US), Marathon Petroleum (MPC.US), and HF Sinclair (DINO.US) are Top Picks

According to Zhitong Finance APP, as the U.S. refining industry enters the Q3 2026 earnings season, Goldman Sachs has updated its profit forecasts for the U.S. refiners. Ahead of the results, based on conversations with investors, Goldman Sachs is focusing on three core contentious issues: (a) the outlook for mid-cycle profit margins amid tightening global refining fundamentals and disrupted supply; (b) the price spread between light and heavy crude as Canadian and Venezuelan heavy crude supply increases; (c) capital allocation priorities, i.e., how to balance a strong balance sheet, internal growth projects, and shareholder returns.

Despite these concerns, Goldman Sachs remains optimistic about the sector's overall environment, emphasizing its preference for "Buy"-rated stocks, including Valero Energy (VLO.US), Marathon Petroleum (MPC.US), and HF Sinclair (DINO.US).

Goldman Sachs states that for Valero Energy, considering its geographic advantage on the U.S. Gulf Coast, high-quality asset portfolio, and consistently outstanding management execution, the firm continues to believe that Valero will be a major beneficiary of the tightening refining fundamentals.

For Marathon Petroleum, Goldman Sachs is optimistic about the company's shareholder return prospects. Marathon's capital return is strongly supported by dividends from MPLX LP (MPLX.US), and further bolstered by its scale advantages, strong margin realization capabilities, and a solid balance sheet.

Lastly, for investors focused on small- and mid-cap names, Goldman Sachs reiterates its constructive view on HF Sinclair. Considering the company's positioning in niche refining markets, the contribution of its lubricants business, and potential opportunities from Small Refinery Exemptions (SRE), the firm believes HF Sinclair's current valuation offers an attractive risk-reward profile.

Key Stock Analysis

Valero Energy

Goldman Sachs rates Valero Energy as "Buy" with a target price of $496. The bank continues to emphasize Valero's superior asset base on the U.S. Gulf Coast, its flexible crude processing structure, and low-cost operation advantages. Goldman Sachs believes these factors will support strong free cash flow generation in both the short and medium term.

According to Goldman Sachs’ updated forecasts, the company’s free cash flow yield for 2027 and 2028 is expected to be about 11% and 6%, respectively. Additionally, Goldman is positive about management’s prudent approach to capital allocation. Valero prioritizes safe and reliable operations, a healthy balance sheet, and shareholder returns. Notably, the company remains committed to returning 40% to 50% of its adjusted operating cash flow to shareholders via share repurchases and dividends.

Ahead of the upcoming earnings call, Goldman expects investors to focus on: (a) commentary on the refining industry macro environment; (b) outlook for the light-heavy crude spread; (c) renewable diesel margin trends in the DGD segment.

Marathon Petroleum

Goldman Sachs rates Marathon Petroleum as "Buy" with a target price of $519. Goldman maintains a positive outlook on Marathon Petroleum due to the company's scale advantages, vertically integrated value chain, and superior positioning on the U.S. Gulf Coast and West Coast. Goldman also continues to value MPC’s refining segment, thanks to its commercial optimization, low-cost operations, and consistent track record of strong margins.

Furthermore, Goldman Sachs sees Marathon’s capital return prospects as attractive since shareholder distributions throughout the cycle are well supported by dividend payouts from its midstream arm. Distributions from MPLX can cover MPC’s maintenance capex and dividend payments.

Ahead of the results, Goldman will be watching management’s commentary on: (a) margin outlook for different operating regions; (b) MPLX’s future dividend prospects; (c) capital allocation priorities.

HF Sinclair

Goldman Sachs rates HF Sinclair as "Buy" with a target price of $142. For investors focused on small- and mid-cap names, Goldman highlights HF Sinclair as a top pick. The firm believes the stock has potential for about 19% total returns from the current price, mainly driven by its niche market positioning in the Rocky Mountains and U.S. mid-continent, profit contribution from non-refining business segments, and potential from Small Refinery Exemptions (SRE).

Additionally, Goldman emphasizes that management is focused on improving its refining business, including optimizing crude processing configurations, increasing jet fuel production yield, and enhancing operational reliability.

Looking forward, during the Q3 2026 earnings call, Goldman expects the discussion to focus on: (a) refining supply-demand dynamics; (b) monetization of Renewable Identification Numbers (RINs) and the outlook for SREs; (c) progress of midstream growth projects; (d) capital allocation priorities; (e) status of plans to spin off the lubricants business.

Phillips 66

Goldman Sachs rates Phillips 66 (PSX.US) as "Neutral" with a target price of $297. Goldman notes that the key issues among investors regarding PSX focus mainly on three areas: the deleveraging process, improvement in refining operations, and whether the midstream segment can achieve its $4.5 billion annualized EBITDA target by 2027 as planned.

Nevertheless, after a recent site visit to the Wood River refinery, Goldman believes the stock now presents a more attractive risk-reward. The firm sees steady progress in boosting the profitability of the refining business, driven by improved crude sourcing, higher asset utilization, and lower operating costs.

Goldman also likes management's ongoing commitment to strengthening the overall balance sheet while continuing shareholder returns. Based on updated modeling from the firm, PSX is on track to meet a $17 billion total debt target this year, while returning at least 50% of adjusted operating cash flow to shareholders.

Ahead of results, Goldman expects investors to focus on: (a) overall refining industry fundamentals; (b) further progress in operational improvements; (c) updates on midstream growth projects; (d) capital allocation priorities.

PBF Energy

Goldman Sachs rates PBF Energy (PBF.US) as "Neutral" with a target price of $91. As earnings season approaches, Goldman is looking for more clarity on the company’s capital allocation priorities. The bank specifically notes that strong cash flow generation could significantly accelerate the deleveraging process.

Apart from a robust refining margin environment, investor discussions about PBF also focus considerably on the company's exposure to the light-heavy crude spread. Goldman notes that expectations for rising oil output from Canada and Latin America have shifted market attention onto the widening spread. The bank also hopes management will elaborate on its strategies for meeting Renewable Volume Obligations (RVO), especially with RIN prices remaining high.

CVR Energy

Goldman Sachs rates CVR Energy (CVI.US) as "Sell" with a target price of $50. For CVI, Goldman notes that investor discussions center mainly around the stock’s relative performance and the likelihood of outperforming in the upcoming Q3 results.

Although Q4 is usually seasonally weaker, especially in the U.S. mid-continent, Goldman believes profit forecasts can remain elevated, supported by factors such as low inventory levels, ongoing global supply disruptions, and resilient demand. Additionally, capital allocation priorities for CVR Energy are also a focus, especially in terms of how the company balances dividend payments, deleveraging, M&A, and capex allocation.

Additionally, Goldman Sachs rates Delek US (DK.US) as "Buy" with a target price of $83, and Par Pacific (PARR.US) as "Buy" with a target price of $90.