Guotai Haitong released a research note stating that since 2020, the share prices of the five leading independent US refiners — Marathon Petroleum, Valero, Phillips 66, PBF Energy, and HF Sinclair — have entered a six-year long boom cycle.
The core conclusion is that this rally is essentially driven by a structural global shortage of refining capacity, rather than a short-cycle rebound.
China's refining capacity surpassed that of the United States in 2024 to rank first globally, but just as the US entered a period of adjustment after 40 years of rapid development, China's refining and chemicals industry is standing at an inflection point in the capacity cycle.
The main views of Guotai Haitong Securities Co., Ltd. (601211) are as follows: since 2020, the share prices of the five leading independent US refiners — Marathon Petroleum, Valero, Phillips 66, PBF Energy, and HF Sinclair — have entered a six-year long boom cycle, with their September 2026 highs rising 2,770%, 1,299%, 595%, 1,483%, and 587% respectively from their 2020 lows.
Core conclusion one: this rally is essentially driven by a structural global shortage of refining capacity, not a short-cycle rebound. (1) Since 1977, no new greenfield refinery has been built in the United States; three-tier federal/state/local approval, a 7-10 year construction cycle, over US$10 billion in investment, and long-term demand uncertainty have kept new entrants away, with capacity growth relying entirely on brownfield expansions and upgrades. (2) Since 1990, the number of US refineries has fallen from 205 to 130, with the pandemic accelerating the exit of old marginal capacity, which declined 4.5% in 2020 alone; California, under the combined weight of LCFS carbon standards, the nation's highest gasoline tax, and a 2035 zero-emission policy, has formed a "shutdown-gap-high prices-tighter regulation" exit spiral. (3) European refining capacity has been shut down by about 35% cumulatively from its peak and Japan by 42.6%, with a faster pace of clearing; the Russia-Ukraine conflict and the US-Iran conflict have also caused about 10% of global refining capacity to be effectively idled, and the United States, as the only marginal supplier able to ramp up output, has seen its utilization rate rise to 93.6%, with the diesel crack spread breaking above US$102 per barrel for the first time in August, hitting a historic extreme.
Core conclusion two: a long-cycle review reveals the patterns of the refining industry — the "golden age" appears during periods of capacity contraction plus stable demand, not during periods of high demand growth. After US refining capacity peaked in 1981 (324 refineries, 18.62 million barrels per day), EPAA price controls had artificially subsidized small refineries and created "institutional oversupply"; after deregulation, combined with Volcker's tightening, 106 refineries were cleared within five years. During the 1995-2005 super-merger wave, the Majors sold assets on a large scale due to low refining profitability and FTC-mandated divestitures, and independent refiners seized the opportunity to rise, forming the industrial foundation of the five independent refining stocks. Surviving companies, relying on the NCI complexity advantage (US Gulf average above 12, dual-high coking plus FCC, the world's only full deep-processing coverage) and their positioning as a dual-circulation hub of "heavy crude in, light products out," achieved dual expansion of profitability and valuation during the capacity contraction period.
Core conclusion three: the mapping to China's refining and chemicals sector — from "scale expansion" to "cash cow revaluation." China's refining capacity surpassed that of the United States in 2024 to rank first globally, but just as the US entered a period of adjustment after 40 years of rapid development, China's refining and chemicals industry is standing at an inflection point in the capacity cycle. Three lessons are worth drawing on: (1) use market-based mergers and reorganization to promote survival of the fittest, with the exit criterion being sustained profitability rather than plant scale; (2) concentrate capacity toward large-scale coastal and refining-chemical integrated bases, and "reduce oil, increase chemicals" to strengthen resistance to cycles; (3) Valero currently trades at about 7.7 times PE and 3.8 times PB; Marathon Petroleum trades at about 7.6 times PE and 5.1 times PB, with relatively higher valuations. The high valuations are essentially the market pricing in a "capital discipline plus shareholder returns" paradigm. Valero has returned US$42.4 billion to shareholders cumulatively since 2021 and has committed to a minimum payout ratio of 40-50% of operating cash flow, while Marathon pursues 100% excess cash buybacks and cancellations. This is precisely the fundamental source of the upward shift in valuation centers.
Investment recommendations: (1) US refining-related stocks benefiting from geopolitical conflicts and the global clearing of refining capacity; (2) domestic refining leaders expected to mirror the development path of US refiners.
Risk warning: large fluctuations in crude oil prices, changes in macro policies, and demand falling short of expectations, among others.
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