Valero Energy Plummets 2.4% Amid Regulatory Woes and Sector Turbulence – What’s Next?

Summary
• Valero Energy (VLO) slumps 2.44% intraday to $171.70, marking its steepest decline in months.
• Bank of America downgrades VLO to Neutral, citing valuation risks amid geopolitical and regulatory pressures.
• California refinery closure and $1.1B impairment charge spark sector-wide concerns over refining margins.
• IEA forecasts tighter product markets in 2026, yet VLO’s short-term technicals signal bearish momentum.

Valero Energy’s sharp intraday drop reflects a confluence of regulatory headwinds, sector-specific challenges, and evolving macroeconomic dynamics. With the stock trading below its 52-week high and key technical indicators flashing caution, investors must weigh near-term risks against long-term refining sector resilience.

Regulatory Headwinds and Strategic Shifts Trigger Sharp Decline
Valero Energy’s 2.44% intraday decline is driven by a dual shock: the company’s decision to close its Benicia refinery and a Bank of America downgrade. The $1.1 billion impairment charge from shuttering the Benicia and Wilmington refineries—facilities processing 145,000 barrels per day—signals a strategic pivot to Louisiana amid California’s regulatory onslaught. Governor Newsom’s failed negotiations highlight the state’s punitive policies, which Valero calls 'financially unsustainable.' Meanwhile, BofA’s Neutral rating downgrade underscores concerns over refining margins amid expected resolution of the Ukraine-Russia conflict, which could ease crack spreads and reduce refining profitability. These factors, combined with a 52-week P/E of 32.45, position VLO as a short-term underperformer in a sector grappling with regulatory and geopolitical volatility.

Oil & Gas Refining Sector Faces Mixed Outlook as VLO Struggles
The Oil & Gas Refining & Marketing sector is navigating a paradox: tightening product markets amid a global crude surplus. The IEA’s December 2025 report notes a 610 kb/d drop in November oil supply, with OPEC+ accounting for 80% of the decline. Yet refining margins have surged to 3-year highs, driven by EU sanctions on Russian crude-derived products and unplanned outages. Marathon Petroleum (MPC), the sector’s leader, fell 1.93% intraday, reflecting broader refining sector fragility. While VLO’s closure of California refineries aligns with industry trends of consolidating operations in lower-cost regions, its short-term pain contrasts with peers like MPC, which benefit from higher U.S. refining utilization rates. The sector’s 2026 outlook remains split: IEA forecasts 84.4 mb/d in global crude runs, but VLO’s regulatory-driven impairment and BofA’s valuation concerns highlight near-term risks.

Bearish Technicals and High-Leverage Puts Signal Short-Term Hedging Opportunities
• 200-day MA: $144.58 (well below current price)
• RSI: 42.58 (oversold territory)
• MACD: 1.01 (bearish divergence with signal line at 1.66)
• Bollinger Bands: Price at $171.70, below the middle band ($176.67) and near the lower band ($169.83)

VLO’s technicals suggest a short-term bearish bias, with key support at the 200-day MA ($144.58) and resistance at the 30-day MA ($175.54). The stock’s 52-week high of $185.62 remains a critical psychological level. For traders, the most compelling options are high-leverage puts with moderate deltas and strong gamma/theta profiles. Two top picks from the options chain are:

• VLO20251219P172.5 (Put, $172.5 strike, 2025-12-19 expiry):
- IV: 30.16% (reasonable)
- LVR: 46.37% (high leverage)
- Delta: -0.5328 (moderate sensitivity)
- Theta: -0.0057 (minimal time decay)
- Gamma: 0.0489 (strong price sensitivity)
- Turnover: $99,242 (liquid)
- Payoff at 5% downside ($163.12): $9.38 per contract. This put offers asymmetric upside in a bearish scenario, with high leverage and strong gamma to capitalize on price acceleration.

• VLO20251219P165 (Put, $165 strike, 2025-12-19 expiry):
- IV: 34.97% (moderate)
- LVR: 134.04% (extreme leverage)
- Delta: -0.2280 (moderate sensitivity)
- Theta: -0.0852 (moderate time decay)
- Gamma: 0.0321 (solid sensitivity)
- Turnover: $67,179 (liquid)
- Payoff at 5% downside ($163.12): $1.88 per contract. This put’s extreme leverage makes it ideal for aggressive short-term hedging, though its lower delta requires a sharper price move to unlock gains.

Trading View: Aggressive bears should prioritize VLO20251219P172.5 for its balance of leverage and liquidity. If VLO breaks below $170, consider scaling into the $165 put for amplified exposure.

Backtest Valero Energy Stock Performance
The backtest of Vanguard Total Stock Market ETF (VLO) after an intraday plunge of -2% from 2022 to now shows positive short-to-medium-term performance, with win rates and returns increasing across 3-day, 10-day, and 30-day intervals. The maximum return during the backtest period was 5.98% over 59 days, indicating that VLO has a favorable rebound capacity following significant dips.

VLO’s Short-Term Weakness Pivotal – Watch for $170 Breakdown and Sector Catalysts
Valero Energy’s 2.44% intraday drop underscores near-term vulnerabilities from regulatory and valuation pressures, but the stock’s long-term fundamentals remain intact. The key technical level to monitor is $170, which, if breached, could trigger a retest of the 200-day MA at $144.58. Sector-wide, the IEA’s forecast of 84.4 mb/d in 2026 crude runs and OPEC+ output discipline suggest refining margins may stabilize by mid-2026. Investors should also track Marathon Petroleum’s performance (-1.93% intraday) as a barometer for sector sentiment. For now, the VLO20251219P172.5 put offers a compelling hedge against further declines, while a rebound above $176.67 could reignite bullish momentum. Action: Short-term traders should prioritize the $172.5 put, while longer-term investors may consider dollar-cost averaging into VLO’s 52-week low of $99.00.