Phillips 66’s Refinery Closure: A Bold Move to Fuel the Future—or a Recipe for Disaster?

The energy landscape is shifting faster than a Tesla on a supercharger, and Phillips 66 (PSX) is making a radical gamble to stay in the game. The company’s decision to shutter its Los Angeles refinery by year-end 2025—eliminating 600 jobs and 300 contractor roles—has sparked heated debates about its strategic vision. But here’s the truth: this isn’t just about cutting costs. It’s about betting everything on a high-stakes pivot to renewables. And if PSX pulls it off, shareholders could be sitting on a goldmine. Let’s break it down.

The Layoffs: A Necessary Sacrifice or a Strategic Blunder?

Closing a refinery that produces 8% of California’s gasoline and diesel isn’t just about trimming payroll. It’s a surgical strike to redirect resources toward the future. PSX isn’t just shutting down a plant—it’s abandoning a dying business model. Traditional refining margins have been crushed by weak crack spreads (gasoline refining profits fell to $0.23/gallon in March 025, below five-year averages), regulatory headwinds, and oversupply. The $775M refining loss PSX posted in Q4 2024 screams that this old-school game is over.

But here’s the kicker: PSX isn’t walking away from the West Coast. It’s pivoting. The company’s Rodeo Renewable Energy Complex, which will produce 30,000 barrels/day of sustainable aviation fuel (SAF) and renewable diesel, is its new golden ticket. This isn’t a retreat—it’s a calculated move to dominate the green fuels market.

Valuation: Is PSX Pricing in the Future—or Missing the Mark?

At $112.98 per share (as of May 22), PSX trades at a 4.2x EV/EBITDA multiple—well below its 10-year median of 4.72x. The market is pricing in near-term pain from refinery closures and legal battles like the $1B lawsuit from Propel Fuels. But this is a value trap for the bold.

Consider this: PSX’s renewable segment generated $28M in Q4 2024, up from $859M in refining losses. The company’s 2025 capital budget tilts toward renewables, with $750M allocated to projects like Rodeo. Meanwhile, its 17.25% upside forecast over 12 months (projected $138–$154 price range) hints at pent-up potential.

The Regulatory Gauntlet: Can PSX Navigate California’s Green Gridlock?

California’s new fuel inventory laws aren’t the reason for the closure, but they’re a ticking time bomb. The state’s gasoline inventories are already 20% below the U.S. average, and losing Wilmington’s 139,000 bpd capacity could send prices soaring. PSX’s bet is that its renewable fuels and strategic partnerships (like the Rodeo complex) will insulate it from volatility. But if regulators keep ratcheting up costs, this could backfire.

The Wildcard: Shareholder Activism and Strategic Focus

Elliott Investment Management’s push for portfolio simplification adds urgency. Activists want PSX to offload non-core assets and double down on high-margin renewables. This isn’t just noise—it’s a catalyst. A streamlined PSX could slash costs by $200M annually by 2025, boosting margins and investor confidence.

The Bottom Line: Buy the Dip—But Keep a Bulletproof Vest

PSX is in a fight for its life, but this isn’t a death sentence—it’s a reboot. The refinery closure is painful, but the pivot to renewables could pay off in spades as global demand for SAF and low-carbon diesel skyrockets. At current prices, the stock offers a 3.6% dividend yield—higher than the S&P 500—and a potential 20% upside if its renewables strategy clicks.

Action Plan: - Buy PSX at $110–$115, aiming for $150 by year-end 2025. - Set a stop-loss at $95 to guard against regulatory or operational stumbles. - Watch for Q2 earnings: If renewable profits exceed $50M and refining losses shrink, this stock will soar.

This isn’t a bet on the past—it’s a stake in the future. If you’re in it for the long haul, PSX could be your ticket to the next energy boom. But blink, and you’ll miss it.