BTIG: U.S. Refining Stocks Plunge Nearly 7% in a Single Day — The Strongest Rally in Three Decades May Be Unraveling
nashnova research
The S&P 500 refining and marketing index fell 6.8% Tuesday, its worst day since the April 2025 'Liberation Day' tariff shock — yet the sector still sits on a 157% year-to-date gain, the strongest in three decades. BTIG warns the first crack has appeared at the top, not the bottom.
How extreme is a 157% annual gain?
The S&P 500 refining and marketing index is up 157.3% year-to-date, with two months still to go.
This means → the previous 30-year records were 2012 at +80.1% and 2005 at +77.3%. This year's rally is nearly double the all-time best.
BTIG strategist Jonathan Krinsky flagged the risk as early as August, when the index sat 43% above its 200-day moving average — "a level rarely sustained over the past 15 years."
How is this sell-off different from 'Liberation Day'?
In April 2025, refining stocks fell alongside the entire market — a broad panic sell-off from low levels.
This time the broad market was rising while refiners dropped 6.8% in a single session, the worst day since that tariff shock.
In plain terms = last time everyone fell together; this time only refiners stumbled — and they stumbled from a historic high. The nature of the drop is fundamentally different.
Why are profits and stock prices diverging?
The 3-2-1 crack spread — the benchmark profit from refining three barrels of crude into two of gasoline and one of diesel — fell from a September peak of roughly $70/bbl to about $51/bbl, a technical break below multi-month lows.
Refining stock prices, however, kept climbing until roughly two weeks ago. Prices up, profits down — a clear divergence.
This reflects a market that has priced refiners "to perfection," as Krinsky puts it, well beyond what fundamentals support.
What is going wrong on the gasoline side?
The NYMEX gasoline crack spread fell to $27.94/bbl last Friday, the lowest since April 2025.
The diesel crack spread still sits near $98/bbl — about 3.5× gasoline's margin. But in the 3-2-1 refining mix, gasoline accounts for two-thirds of output.
In plain terms = the profitable slice (diesel) is only one-third of production; the money-losing slice (gasoline) dominates, dragging blended margins lower.
What other pressures are stacking up?
Goldman Sachs real-time data show U.S. gasoline pump demand is down roughly 2% year-on-year. Refinery utilization has climbed to its highest since 1998, leaving almost no room to push volumes higher.
A new supply-side variable: the first Russian diesel tanker under the Trump–Moscow fuel deal is now heading for the U.S., threatening to dilute the diesel margin premium.
Mizuho moved to the sidelines on Phillips 66, Delek, and Par Pacific on October 8. Even after raising target prices by about 40%, average upside for the sector shrank to roughly 4%, implying about 8.5× two-year forward EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) — above the 6.7× historical average.
What is the key thing to watch next?
Krinsky's core call: expect at least consolidation, more likely "a meaningful downside reversion."
This means → the market's key test over the coming weeks is whether the gap between stock prices and crack spreads can close. If profits keep sliding and stocks don't follow, the crowded-trade unwind could accelerate.
Put simply = whether the strongest rally in 30 years holds depends on profits catching up to prices. If they don't, the next move is a high-altitude correction.
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