Unusual options flow was detected in VLO stock on April 17, 2020. Short sellers appear to be targeting the stock with 12,932 January 15, 2021 put contracts traded with a $35 strike, and an implied volatility of 71.66%.
On April 13, 2020, Valero reported that the recent outbreak of COVID-19 and its development into a pandemic has resulted in significant economic disruption globally, including in North America and Europe, the primary geographic areas where the company operates.
There has been a decline in the demand for, and thus also the market prices of, crude oil and certain of Valero’s products, particularly refined petroleum products and most notably gasoline and jet fuel. In addition, recent events concerning the dispute over production levels between Russia and the members of OPEC, particularly Saudi Arabia, and the subsequent actions taken by such countries as a result thereof, including Saudi Arabia discounting the price of its crude oil exports, have exacerbated the decline in crude oil prices and have contributed to an increase in crude oil price volatility. The decrease in the demand for refined petroleum products coupled with the decline in the price of crude oil has resulted in a significant decrease in the price of the refined petroleum products manufactured by thee company’s refining segment. Because ethanol is primarily blended into gasoline, ethanol demand has declined along with the decline in the demand for gasoline, and the price of the products manufactured by our ethanol segment have also decreased.
Essential businesses, including the critical logistics infrastructure to move and transport goods produced by those businesses, continue to operate, blunting the decrease in the demand for diesel. Demand for renewable diesel is consistent with the demand for diesel as a whole; therefore, Valero’s renewable diesel segment has not been impacted as significantly as its refining and ethanol segments. The price of refined products the company sells and the feedstocks it purchases impact its revenues, cost of sales, operating income and liquidity.
In addition, a decline in the market prices of refined products and feedstocks below the carrying value in its inventory may result in the adjustment of the value of its inventories to the lower market price and a corresponding loss on the value of our inventories. Valero is actively responding to the impacts from these matters on its business.
In late March and through early April, Valero started reducing the amount of crude oil processed at most of its refineries in response to the decreased demand for its products, the company temporarily idled various gasoline-making units at certain of our refineries to further limit gasoline production, and it took measures to reduce jet fuel production. Valero also temporarily idled eight of its ethanol plants, and reduced the amount of corn feedstock processed at its remaining six ethanol plants to address the decreased demand for ethanol. In addition to these measures, Valero is addressing its liquidity as follows: It expects to defer or delay certain capital expenditures which it had expected to make in 2020 related to its refining and ethanol segments; It deferred approximately $100M of direct and indirect tax payments due in Q1, and it plans, to the extent possible, to defer certain other direct and indirect tax payments in 2020. These deferrals have been provided to taxpayers under new legislation, such as the CARES Act in the U.S., and by various taxing authorities under existing legislation; It has not purchased any shares of its common stock since mid-March, and will evaluate the timing of repurchases when appropriate; The company is analyzing various other liquidity options.
Many uncertainties remain with respect to COVID-19, but the adverse impact of the economic effects on the company has been and will likely continue to be significant. Valero believes it has proactively addressed many of the known impacts of COVID-19 to the extent possible and will strive to continue to do so, but there can be no guarantee that these measures will be fully effective.