Valero Expands Into Northern Mexico Refined Product Market

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Valero Energy CorporationVLO recently signed a long-term contract through its subsidiary, Valero Marketing and Supply de Mexico, S.A. de C.V. for providing refined products like diesel and gasoline to northern Mexico.

Valero is expected to ship fuels from its refineries located in the Corpus Christi and Three Rivers in Texas to Mexico. The company is likely to use NuStar Energy L.P.'s NS infrastructure, which includes the midstream company's Nuevo Laredo storage terminal in Mexico and its related pipelines. The terminal has five storage tanks that hold 34,000 barrels of refined products, which is likely to be increased to meet Valero's requirement. By 2018-end, Valero is expected to start shipping fuel to the storage terminal.

The deal is in line with Valero's strategy of expanding its supply chain in a growing market. Notably, the company has an existing deal made in August 2017, to supply fuels in central Mexico. We note that SENER, Mexico's Ministry of Energy, had issued renewable permits to Valero for importing almost 54 million barrels of gasoline along with more than 56.7 million barrels of diesel per annum. Notably, the latest accord comes right after the company signed a contract to foray into the South American infrastructure market through the acquisition of Pure Biofuels del Peru S.A.C.

We also note that previously, Northern Mexico used to be provided with fuels by the country's national oil company, Pemex. The Caderayta and Madero refineries of Pemex supplied 285,000 barrels per day (BPD) and 190,000 BPD of fuels in the region. But in the recent times, Pemex's refineries are producing below their capacity, triggering significant import of fuels. In February 2018, demand for refined products in the northeastern states of Coahuila, Tamaulipas and Nuevo Leon together was 171,800 BPD, of which almost 40% was imported.

Price Performance

San Antonio, TX-based Valero has gained 79.5% in the past year compared with 13.7% growth of its industry .

Zacks Rank and Stocks to Consider

Valero has a Zacks Rank #3 (Hold).

Investors interested in the Energy sector can opt for some better-ranked stocks in the same space like Nine Energy Service, Inc. NINE and CNOOC Limited CEO , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Houston, TX-based Nine Energy Service is an onshore service provider. For 2018, the bottom line is likely to be up 164.5%. In the last reported quarter, the company delivered a positive earnings surprise of 28.6%.

Hong Kong-based CNOOC is an integrated energy company. The company's top line for 2018 is anticipated to improve 49% year over year, while its bottom line is expected to increase 83.3%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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