"Big Short" Burry bets on the "refining crunch"! Valero Energy Corporation (VLO.US) surges 143% year-to-date, eyeing its best annual performance since 1982.

Investor Michael Burry, known for accurately predicting the 2008 subprime crisis, said that after a historic rally, Valero Energy Corporation (VLO.US) has become his "huge position." The real-life protagonist of the film "The Big Short" therefore withdrew his initial principal and donated the proceeds to charity, while continuing to hold a sizable position. Burry made the remarks as a new round of attacks on Saudi energy infrastructure and damage to Russian refineries exacerbated a global fuel shortage. Valero Energy Corporation rose 1.3% last Friday to close at a record $390.42, with a year-to-date return of about 143% far outpacing the S&P 500's roughly 12% gain this year, putting the stock on track for its strongest annual performance since records began in 1982. It is understood that Burry last bought Valero Energy Corporation during 2020, when COVID-19 lockdowns halted global travel, flights and factories, and WTI crude oil futures briefly fell into negative territory. In a recent subscriber chat on his Substack column "Cassandra Unchained," Burry said: "Valero Energy Corporation is a great business, and after this rally, it is now a huge position for me." He said he had pulled out his initial investment "and then some" from the position, donating the entire amount to a donor-advised fund for charity. He added: "The remaining Valero Energy Corporation position is still sizable, but it has long been 'house money,' and I put it in a dividend reinvestment plan." In January this year, Burry laid out in detail his investment thesis for Valero Energy Corporation. His investment logic focused on Valero Energy Corporation's Gulf Coast refineries, many of which were built to process heavy, high-sulfur Venezuelan crude. Previously, after sanctions, underinvestment and the collapse of Venezuelan crude production reduced this type of supply, these refineries could only run on lighter, less suitable feedstock. In January this year, changes in Venezuela's political situation reignited market expectations that Venezuelan crude production could recover. Burry said: "Many Gulf Coast refineries were built specifically for Venezuelan heavy crude." He added that a recovery in supply "could, over time, produce better margins in jet fuel, asphalt and diesel." Burry also said at the time: "I have held Valero Energy Corporation since 2020, and I am even more determined to hold it longer." However, he also warned that restoring Venezuelan crude exports could take years. Refining margins surge, boosting Valero Energy Corporation shares An important factor driving Valero Energy Corporation's stock surge this year is the boost to refining margins from high refined product prices. Against the backdrop of years of U.S. domestic refinery closures and Middle East wars tightening global fuel supply, U.S. refiners are running flat out to meet market demand, helping make the second quarter one of the most profitable quarters in history. Valero Energy Corporation (VLO.US) previously reported earnings showing that, on an earnings-per-share basis, the company achieved the strongest quarterly performance in its history; its second-quarter net profit more than quadrupled year over year, rising from $714 million in the same period last year to $3.7 billion, a record high. As tight fuel supply persists, refiners' earnings performance may improve further. Valero Energy Corporation Chief Operating Officer Gary Simmons previously said on a conference call with analysts: "The margin environment so far is even stronger than in the second quarter." He noted that lower crude costs are driving margin improvement. Simmons also said there is currently little sign that fuel prices will fall in the short term. He pointed out that jet fuel prices, which have retreated from historic highs this summer, appear to be rising again. Years of refinery closures have left the fuel market lacking a supply buffer. Now, war between the United States and Iran has disrupted Middle East fuel exports, while Ukrainian attacks on Russian refining facilities have also limited gasoline and diesel exports. Together, these supply disruptions have reduced global fuel inventories and pushed global fuel prices higher. With demand remaining relatively stable, gasoline and diesel inventories show little sign of recovering, meaning the market will remain tight on supply and prices will stay high. Although fuel production typically begins to slow in autumn, U.S. refiners say they will continue chasing margins close to historic records. U.S. refining capacity nears its limit; White House plans to invoke Defense Production Act to expand output Although the United States is one of the world's largest refining countries, with a vast refinery network capable of processing millions of barrels of crude oil per day, refined product prices remain high. The national average gasoline price broke through $4 per gallon on this year's Labor Day (September 7), a record high for the holiday. Meanwhile, the latest AAA data on Friday showed the national average diesel price reached $6.0556 per gallon, breaking through $6 per gallon for the first time in history; in California, the average diesel price was even higher at $7.9827 per gallon. U.S. refiners are already running at nearly full speed. As of July, U.S. refinery utilization had been near or above 95% for nearly two months, which raises the risk of equipment failures and maintenance delays and could worsen already tight supply conditions. Meanwhile, according to two people familiar with the matter, as the conflict with Iran exposed the United States' vulnerability to global crude supply disruptions and price spikes, the White House is considering how to invoke the Defense Production Act to expand U.S. refining capacity. The people familiar with the matter said the proposal to use the act was raised during a recent meeting between Trump and nearly 12 U.S. refiners. White House officials at the meeting sought to determine how federal support could best be used to increase capacity. Refining executives told officials that federal funds would be best used to improve the operating efficiency of existing refineries or expand existing plants, rather than funding the construction of an entirely new refinery, which would be far more costly and take years to complete. Invoking the Defense Production Act is seen as a last resort, and the act has never before been used to increase refining capacity. It is understood that the act gives Trump broad powers to mobilize industrial resources and provide financial incentives to companies expanding production of materials deemed important to national defense. Consideration of such an unusual move highlights the growing pressure on the Trump administration Trump needs to show before the November midterm elections that he can curb the impact of soaring fuel prices on consumers and businesses.