This has been a historic run for refiners. Marathon, Valero, and HF Sinclair each gained over 80% in 2026 against an 11% S&P 500 gain, with the WTI 3-2-1 crack near $59/bbl margins, nearly tripling since January.
MPC and VLO have nearly doubled YTD, PSX is up 66%, and roughly a third of that move came in a single month. The 2010–2021 average for that same spread was about $19.
How rare is this move?
According to my friend Carter Worth at WorthCharting, the S&P 500 Oil & Gas Refining & Marketing Sub Industry group that comprises Marathon, Valero Energy and Phillips 66 has jumped 104% this year. As of Friday’s close, the Index is 41% above Worth’s favorite indicator, the 150-day moving average. This has only happened five times in the index’s history. The six-month forward return was negative in all five instances with an average return of negative 10.1%.
If you’re still tempted to jump, realize the margin driver here is geopolitical, and geopolitical premiums are reversible. The blowout of the crack spread came from hostilities in the Strait of Hormuz, combined with those between Russia and Ukraine. Although the Strait has received more attention lately, Russia is a substantial producer of refined products perhaps 5.5mm bpd under normal circumstances, but that production has fallen by 25-30% by some estimates.
A ceasefire in the Gulf that actually holds would push crack spreads sharply lower, and take the refiners with it. As I write this Nymex 3:2:1 spreads are ~$69.92 for September (up from less than $20 in early January) and $44.38 for August 2027, more than 35% lower. The average for the period between February 2016 and February 2026 (just before the strikes on Iran) is $21.68.
Marathon Petroleum, YTD
Cyclical (or mean reverting) businesses look cheapest at the top as P/Es fall on record earnings. If they didn’t the market would be paying a multiple as if unusually high margins would persist indefinitely, which they don’t. For this reason trailing P/E ratios have fluctuated between the mid single-digits and 35-40 for refiners like Phillips and Marathon Petroleum over the past ten years (excluding the pandemic period).
It is often said that the best cure for high prices is high prices, but it tends to be slow acting. Demand destruction is real, but it can take time for behavior to shift and on the supply side production won’t normalize overnight. If product markets stay short, mid-cycle cracks may genuinely reset higher, meaning today’s multiples aren’t as peak-ish as they look and if Hormuz stays hot into year-end, “extended” gets more extended.
Refining is a great business, but if you’ve had the good fortune ride this trade this year, it’s likely time to take profits, and for bolder folks looking for some mean reversion by year-end, possibly take a bearish bet, using options of course, positioning for crack normalization on any de-escalation headline.
I’ve chosen Marathon Petroleum here, but honestly the thesis is the same for all the big refiners, so if you hold a position in one of the others a similar structure should apply there as well.
Trade Breakdown
- BUY 1 DEC 18 2026 330-STRIKE PUT FOR $21.90
- SELL 1 DEC 18 2026 280-STRIKE PUT GOT $7.15
- MAX LOSS $1,475
- MAX GAIN $3,525
- SKILL LEVEL: INTERMEDIATE
