Valero Energy Plunges 3.3% Amid Sector Turmoil: What's Fueling the Selloff?

Summary
• Valero Energy (VLO) tumbles 3.3% to $170.17, breaking below its 50-day moving average of $170.83
• Sector leader Marathon Petroleum (MPC) declines 2.04%, signaling broader refining sector weakness
• Options volatility surges with 20 contracts trading at 35–47% implied volatility
• Intraday range of $169.82–$173.97 highlights sharp reversal from morning highs

Valero Energy’s sharp intraday decline has ignited a selloff in the refining sector, with technical indicators and options activity pointing to bearish momentum. The stock’s 3.3% drop to $170.17—its lowest since October—coincides with a broader energy sector correction amid IEA warnings of a 3 million b/d global oil surplus. Traders are now scrutinizing the options chain for clues as to whether this is a short-term correction or a deeper bearish shift.

Downgrade and Oversupply Fears Trigger Flight from Refiners
Valero Energy’s selloff was catalyzed by a downgrade from Bank of America to 'Neutral' and the IEA’s latest Oil Market Report, which highlighted a 3 million b/d global oil surplus masking regional refining tightness. The report noted that sanctioned crude exports and elongated supply routes are creating divergent market dynamics, with refining margins hitting three-year highs. This duality—abundant crude but constrained product markets—has left refiners like Valero vulnerable as investors price in lower margins. The downgrade compounded these concerns, triggering a wave of profit-taking and short-covering in a stock already trading near its 200-day low of $133.75.

Energy Sector Suffers as Refiners Grapple with Oversupply
The refining sector is under pressure as Marathon Petroleum (MPC) declines 2.04%, mirroring Valero’s bearish trajectory. Both stocks are reacting to the IEA’s warning of a 3.8 million b/d surplus in 2026 and the EU’s impending ban on Russian crude-derived products. While Valero’s refining margins remain robust (7.26% net margin), the sector’s exposure to global crude oversupply and geopolitical sanctions is creating a headwind. The selloff contrasts with upstream energy names, which have held firm amid OPEC+ output discipline and elevated geopolitical risk.

Bearish Options and ETFs to Capitalize on Volatility
• RSI: 42.58 (oversold)
• MACD: 1.01 (bearish divergence)
• Bollinger Bands: $169.83 (lower band) acting as immediate support
• 200-day MA: $144.58 (long-term bullish trend intact)

Valero’s technical profile suggests a short-term bearish setup with long-term resilience. Key levels to watch include the $169.83 support and $173.97 intraday high. The 200-day moving average at $144.58 remains a critical long-term floor. While the stock is oversold (RSI 42.58), the bearish MACD histogram (-0.65) and declining volume (723,511 shares) indicate momentum is shifting.

Top Options:
• VLO20251219P165 (Put, $165 strike, 12/19 expiry):
- IV: 35.15% (moderate)
- Leverage: 114.60% (high)
- Delta: -0.2557 (moderate sensitivity)
- Theta: -0.0867 (strong time decay)
- Gamma: 0.0341 (responsive to price swings)
- Turnover: 49,632 (liquid)
- Payoff at 5% downside: $5.17 (max profit if VLO drops to $161.66)
This put option offers high leverage and liquidity, ideal for capitalizing on a potential breakdown below $169.83.

• VLO20251219P170 (Put, $170 strike, 12/19 expiry):
- IV: 33.26% (moderate)
- Leverage: 54.21% (high)
- Delta: -0.4524 (strong sensitivity)
- Theta: -0.0493 (moderate time decay)
- Gamma: 0.0444 (high responsiveness)
- Turnover: 23,402 (liquid)
- Payoff at 5% downside: $5.17 (max profit if VLO drops to $161.66)
This contract balances leverage and liquidity, offering a high gamma profile to benefit from volatility spikes.

Action: Aggressive bears should prioritize VLO20251219P165 for its high leverage and liquidity, while VLO20251219P170 provides a safer entry with strong gamma. Both contracts align with the IEA’s bearish thesis on refining margins.

Backtest Valero Energy Stock Performance
The backtest of VanEck Vectors Gold Miners ETF (VLO) after a -3% intraday plunge from 2022 to now shows favorable performance metrics. The 3-Day win rate is 56.48%, the 10-Day win rate is 56.48%, and the 30-Day win rate is 58.46%. This indicates that VLO tends to bounce back after short-term declines. The maximum return during the backtest period was 5.97%, which occurred on day 59, suggesting that VLO can deliver positive returns even after significant pullbacks.

Short-Term Bearish Play, Long-Term Buy for Resilient Refiners
Valero Energy’s 3.3% selloff reflects immediate bearish sentiment but remains within its long-term bullish trend. Investors should monitor the $169.83 support level and the sector leader Marathon Petroleum (MPC), which fell 2.04% today. A breakdown below $169.83 could trigger a test of the 200-day moving average at $144.58, offering a high-risk, high-reward entry for long-term buyers. In the short term, the VLO20251219P165 and VLO20251219P170 options provide leveraged exposure to a potential oversupply-driven decline. Watch for a rebound above $173.97 to signal a reversal in sentiment.