Top 3 Energy Stocks To Look At Next Week- August 31st
Updated: Sep 4
Summary
Refining remains one of the strongest areas of the energy market, supported by tight inventories, high refinery utilization and global supply disruptions that continue to keep product margins elevated.
The opportunity is becoming more selective after a powerful rally. Strong stock-price gains mean investors now need to distinguish between companies simply benefiting from the cycle and those using today's windfall to improve their businesses for the next one.
Our preferred names combine three different strengths: high operating leverage to refining margins, improving balance sheets, and the scale and infrastructure needed to capture global demand for U.S. refined products.
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Refining Has Worked. Now Comes the Harder Question
The refining trade has delivered. When we first started highlighting U.S. refiners, the investment case centered on improving refinery economics, constrained global product supply and companies that were becoming better operators. Since then, some of our preferred names have produced substantial returns. But after gains of 40% to 78% since our respective publications, looking backward is no longer enough.
The question for investors this week is different: Can refining conditions remain strong enough to support further upside? For now, the underlying data remain constructive. U.S. distillate inventories fell by 1.5 Mn barrels during the week ending August 14 to approximately 105.6 Mn barrels, leaving inventories about 13% below their five-year seasonal average. At the same time, U.S. refinery utilization increased to 97.2%, with refiners processing approximately 17.4 Mn barrels of crude per day. That combination is significant. Refiners are running hard, yet inventories of diesel and other distillates remain unusually tight.
Meanwhile, geopolitical disruptions continue affecting global refining capacity and trade flows. Recent analysis from Barron's notes that refining capacity across North America and Europe has been constrained while disruptions involving Russia and the Middle East have tightened global product availability. Refined-product prices have consequently risen faster than crude oil prices, supporting elevated crack spreads. That keeps us constructive on refining, but considerably more selective than we were several months ago.
Why Did I Pick These 3 Energy Stocks?
Our Energy picks this week are PBF Energy (NYSE: PBF), Phillips 66 (NYSE: PSX) and Valero Energy (NYSE: VLO).
Importantly, we did not choose these companies simply because their stocks have performed well. In fact, strong historical returns make the decision more difficult because the margin of safety is naturally smaller after a rally. Instead, each represents a different way of participating in the current refining environment. PBF Energy offers the greatest turnaround and operating leverage of the three. Phillips 66 combines refining exposure with a growing Midstream platform and an improving balance sheet. Valero Energy provides scale, strong refining execution and substantial exposure to global refined-product markets.
Henriot Energy Picks This Week
Company | Rating | Thesis Published | Price at Publication | Current Price | Return Since Publication |
PBF Energy (PBF) | Strong Buy | Apr. 14, 2026 | $38.96 | ~$70 | +78% |
Phillips 66 (PSX) | Strong Buy | Apr. 14, 2026 | $158.76 | ~$242 | +52% |
Valero Energy (VLO) | Strong Buy | May 16, 2026 | $247.12 | ~$346 | +40% |
Source: Henriot Capital Investment Management Research Tracker. Current prices and returns are based on market data available at the time of drafting
1. PBF Energy: The Turnaround Has Arrived
PBF Energy is our first pick this week. Henriot published its Strong Buy thesis on PBF Energy on April 14, 2026, when the shares traded at approximately $38.96. At around $70 today, the stock has returned approximately 78% since publication. The important point is that PBF's fundamentals have changed alongside its share price. When we originally covered the company, one of the largest parts of our thesis was the expected return of the Martinez refinery. That was still an execution story. Today, Martinez is operational.
PBF confirmed that the refinery returned to full operations in May and is once again supplying its complete product slate into California. The financial recovery has been equally significant. PBF reported Q2 income from operations of $1.27 Bn, compared with $43 Mn a year earlier. Excluding special items, operating income reached $1.05 Bn compared with a $110 Mn loss during Q2 2025. But the balance sheet is what makes the story particularly interesting today.
PBF reduced net debt by more than $1.4 Bn during Q2, ending the quarter with approximately $894 Mn of cash and only $855 Mn of net debt. The company is therefore using today's unusually strong refining environment not simply to report higher earnings, but to reduce financial risk before the next downturn arrives.
Management also believes the current refining environment could persist. CEO Matt Lucey argued during the earnings call that rebuilding depleted product inventories could take considerable time, potentially extending well into 2027. After a 78% return, PBF is clearly no longer the overlooked turnaround we initially identified. But Martinez is back, debt has fallen sharply and the company has unusually high exposure to strong refining margins. That keeps PBF at the top of our Energy list this week.
2. Phillips 66: The More Diversified Refining Play
Our second selection is Phillips 66. Henriot published its Strong Buy thesis on Phillips 66 on April 14 at approximately $158.76. With the shares now around $242, the position has returned approximately 52% since publication.
The Q2 results explain much of that performance. Phillips 66 reported $3.8 Bn of adjusted earnings and $9.41 of adjusted EPS, while adjusted EBITDA reached $5.9 Bn. Refining utilization reached 96%, and realized refining margins increased from $10.11 per barrel in Q1 to $24.08 in Q2. What separates PSX from PBF is the composition of the business. Phillips 66 is deliberately building a larger Midstream platform capable of providing more dependable cash generation across the cycle. During Q2, the company achieved record NGL fractionation and LPG export volumes while simultaneously reducing total debt by $6.6 Bn to $20.6 Bn.
That means the current refining boom is doing two things for PSX.
It is generating substantial earnings today while helping management strengthen the balance sheet and continue building businesses that should make future earnings less dependent on refining. This is why PSX remains one of our preferred names even after a 52% gain.
3. Valero Energy: Scale Matters When the World Needs U.S. Fuel
Our third pick remains Valero Energy. Henriot published its Strong Buy thesis on Valero Energy on May 16 at approximately $247.12. At around $346 today, the shares have returned approximately 40% since publication. Valero gives us something different again: scale and global product-market exposure. This matters because the current refining opportunity is increasingly global rather than purely domestic. Geopolitical disruptions have reduced product availability from several important refining regions. At the same time, structural reductions in refining capacity across parts of North America and Europe have made the global system more dependent on efficient U.S. refiners capable of exporting gasoline, diesel and other products.
Valero is particularly well positioned for that environment because of its large Gulf Coast footprint and access to export markets.
The concern, naturally, is how much of the good news is already reflected in the stock.
After a 40% gain since our publication and an even larger rally during 2026, we would not assume that Valero can continue appreciating at the same pace. Refining remains cyclical, and unusually strong crack spreads will eventually normalize. However, tight distillate inventories suggest the cycle has not yet clearly turned. That keeps VLO among our preferred refining exposures for now.
The Returns Have Been Strong, But That Changes the Risk
The performance of these three stocks deserves attention:
PBF Energy: +78%
Phillips 66: +52%
Valero Energy: +40%
Those returns validate much of the original refining thesis, but they also change how we should think about risk. When a stock has already appreciated 50% or 80%, investors should demand stronger evidence before assuming another comparable gain. Fortunately, earnings have risen substantially alongside the share prices. The current refining rally is not occurring while product inventories are overflowing. U.S. distillate stocks remain approximately 13% below their five-year seasonal average despite refinery utilization reaching 97.2%. That tells us the industry is still struggling to rebuild the product cushion. Recent reporting also suggests investors remain skeptical about how sustainable current profitability will be, which has kept valuation multiples relatively restrained despite strong earnings and share-price performance. That skepticism is healthy. We share some of it. We simply do not believe the evidence yet supports abandoning the refining trade.
What Could Change Our View?
Three indicators matter most from here. The first is distillate inventories. If stocks begin rebuilding rapidly toward normal seasonal levels, one of the strongest supports for diesel margins would begin disappearing. The second is crack spreads. Refiners make money on the spread between their crude feedstock costs and the value of the products they sell. A sustained contraction in those spreads would directly pressure earnings. The third is refinery utilization and global capacity. U.S. refiners are currently running at exceptionally high utilization. If disrupted international capacity returns while demand weakens, product supply could normalize considerably faster.
There are already reasons not to become complacent. U.S. commercial crude inventories increased by 4.4 Mn barrels during the week ending August 14, while gasoline inventories also increased. WTI and Brent nevertheless remained elevated as markets continued balancing improving crude availability against tight refined-product conditions. That distinction between crude availability and product availability may be one of the most important things to watch over the coming weeks.
What We Are Watching Next
For now, our focus remains on whether the refining system can rebuild inventories before demand and geopolitical conditions change. The next EIA inventory releases will therefore matter.
If distillate inventories remain near current levels despite high refinery utilization, the argument for sustained refining margins becomes stronger. Conversely, several consecutive large inventory builds accompanied by falling crack spreads would make us more cautious. We will also watch how PBF, PSX and VLO allocate the cash being generated during this period. Peak-cycle earnings are valuable, but what management does with them matters even more.
Debt reduction, disciplined buybacks, dividends and investments that structurally lower operating costs can create shareholder value that survives after crack spreads normalize.
That is ultimately what separates a good refining quarter from a good long-term investment.
Bottom Line
U.S. distillate inventories remain unusually tight at approximately 105.6 Mn barrels and 13% below their five-year seasonal average, even as refinery utilization sits at 97.2%. Global supply disruptions continue supporting U.S. refiners, while each of our three selections has additional company-specific strengths. PBF offers the greatest turnaround and operating leverage. Phillips 66 combines refining upside with a growing Midstream foundation and aggressive debt reduction. Valero provides scale and strong exposure to increasingly valuable U.S. refined-product exports. The easy part of this trade may already be behind us. The question now is not whether refining has been strong. It is whether the boom can last long enough for these companies to turn today's exceptional margins into lasting shareholder value. For now, we believe the evidence says yes.
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Important Disclosure
Past performance is no guarantee of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to corresponding past performance levels. Inherent in any investment is the potential for loss. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Henriot Investment Management Ltd is not a fiduciary by virtue of any person’s use of or access to the Site. Henriot Investment Management is not a licensed securities dealer, broker or investment adviser or investment bank.
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