After doubling in share price year-to-date, Valero Energy Corporation (VLO.US) and Marathon Petroleum (MPC.US) were downgraded by Jefferies Financial Group Inc.: valuations are already elevated.

Jefferies Financial Group Inc. downgraded refiners Valero Energy Corporation (VLO.US) and Marathon Petroleum (MPC.US) from "Buy" to "Hold," with price targets of $401 and $413, respectively, saying their valuations look stretched after the shares more than doubled over the past year. "Tight refining fundamentals have no clear solution... What could break the current cycle? We think product prices need to rise further and stay elevated to spur demand destruction, otherwise government intervention may be necessary," analysts led by Lloyd Byrne said in a report. "Investors are focused on a potential U.S. ban on refined product exports ahead of the midterm elections, and political support for such a ban is growing. While this would be detrimental to global stability and have economic consequences for the U.S., given that global powers are increasingly prioritizing national interests, the U.S. could follow suit," the analysts wrote. Byrne believes the risk-reward for refiners supports holding existing positions while waiting for market volatility to bring more opportunities to add; even if forward prices remain elevated through 2029, current share prices still imply mid-2030 margins close to 2025 levels. As of Tuesday's U.S. stock market close, Valero Energy Corporation fell 4.10% to $377.14, still up 135% year-to-date; Marathon Petroleum fell 3.16% to $389.68, still up 142% year-to-date.