Phillips 66: Fuel Demand & Midstream Strength Support the Business
With West Texas Intermediate (“WTI”) oil prices currently hovering around $90 per barrel, according to Oilprice.com, and owing to tensions in the Middle East, the overall energy business is uncertain.
The U.S. Energy Information Administration projects the spot average WTI price for 2026 at $88.21 per barrel, higher than $65.40 in 2025. Thus, Phillips 66 PSX, which generates significant margin from its refining activities, is likely to be hurt by high oil prices. Despite the high input cost, the refining business environment is highly profitable as demand for fuels remained strong, while global fuel inventories stayed relatively tight.
Investors should also know that although a leading refiner, PSX, unlike most of its refining peers, has diversified the business across midstream and chemicals. Along with investing in refining operations, Phillips 66 is allocating a significant amount of capital to midstream.
Midstream business, by its very definition, is stable, generating stable cash flows as the assets are being utilized by shippers for the long term, and is less vulnerable to commodity price volatility. Hence, having a diversified business model, Phillips 66 is insulated from commodity price volatility to a great extent.
DINO & PARR Poised to Gain
HF Sinclair DINO and Par Pacific Holdings Inc. PARR, two other well-known refiners, are also likely to benefit from the ongoing favorable refining business.
On its second-quarter 2026 call, HF Sinclair mentioned that wars in the Middle East and Ukraine have disrupted refining capacities. DINO stated that inventories of fuel in the United States and in its key operating regions are low, especially when the demand for the end products remains healthy, thereby creating opportunities to earn healthy refining margins.
Par Pacific continued to benefit from a strong refining market at the start of the third quarter. The company’s refining index, which is a rough measure of how profitable it is to turn crude oil into products like gasoline and diesel, was still very high in July at $31.34 per barrel, only slightly below the second-quarter average of about $33.
Demand for fuels remained strong, especially on the mainland, while global fuel inventories stayed relatively tight. In simple terms, there was still healthy demand for refined products and limited excess supply, which helped PARR continue earning attractive margins from its refineries.
PSX’s Price Performance, Valuation & Estimates
Shares of PSX have gained 103.8% over the past year compared with the 120.9% rise of the composite stocks belonging to the industry.
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From a valuation standpoint, PSX trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 11.95X. This is above the broader industry average of 6.05X.
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The Zacks Consensus Estimate for PSX’s 2026 earnings has gone up over the past seven days.
Image Source: Zacks Investment Research
Phillips 66 currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
