The “big oil refining stock” whose stock price soared 138% during the year was downgraded by Goldman Sachs: freight rates began to erode Par Pacific (PARR.US) profits

The Zhitong Finance App learned that the refining dividends brought about by tight diesel supply are still there, but the further upward trend of US refining giant Par Pacific (PARR.US), whose stock price soared more than 138% during the year, already requires a stronger new catalyst. Goldman Sachs downgraded its rating from “buy” to “neutral” on October 15, and the company's stock price eventually fell 5.56% to close at $83.74. Despite the severe setback, the stock was still up about 2.26% this week as of Thursday, with a cumulative increase of about 2.60% in October, reaching 138.30% during the year; compared to the intraday high of 90.74 US dollars on October 14, the latest closing price retraced about 7.71%. This means, to a certain extent, that short-term profit recovery has clearly intensified, but the huge increase driven by tight energy supply under geopolitical turmoil in the Middle East has not disappeared.

It is worth noting that Goldman Sachs analysts have now adopted a combination of “downgrading the rating and raising the target price” **: the target price was raised from $90 to $94, and there is still room for about 12.3% compared to the latest closing price. There is no contradiction between the two — stronger industry refining profits support profit forecasts and upward target price movements, but benefits such as asset value revaluation and policy exemptions are more fully reflected in stock prices, and rising freight rates may also reduce the room for subsequent profit increases. The market is beginning to ask how much profit this company can generate in excess of current expectations.

Par Pacific dropped sharply by nearly 6% in Thursday's trading. Goldman Sachs downgraded the rating of the energy company, which focuses on refining production capacity, from “buy” to “neutral,” with a target price of $94. The core reason is that the outlook for the stock has become more balanced after the key catalysts have been realized.

The team led by Goldman Sachs analyst Alexa Petrick said that the agency still recognizes the value of Par Pacific's asset portfolio, but believes that the value of its refining business has been more fully understood by the market, and the catalytic effects brought about by the small refinery exemption program have basically been realized.

Although the Goldman Sachs team led by Petrick raised Par Pacific's profit forecast to reflect the updated industry refining profit margin expectations — an adjustment in line with Goldman Sachs's adjustments to other refining companies covered — Goldman Sachs expects the company's profit forecast to be weaker than that of its peers, as high freight costs are expected to drag down actual refining profit margins. The Goldman Sachs analyst team believes that the market's unanimous expectations have not fully taken into account the adverse effects of transportation costs, so there is a risk that profit expectations will be lowered.

With multiple catalysts already reflected in stock prices, Petrick believes that if Par Pacific is to gain room for further growth, the profitability of the Hawaiian business needs to increase significantly under normal economic conditions, or a significant jump in shareholder returns.

How sacred is Par Pacific?

Par Pacific's core business covers refining, energy logistics and fuel retail: it has four refineries in Hawaii, Washington, Wyoming, and Montana, with a total crude oil processing capacity of about 219,000 b/d, and supporting storage, pipelines, terminals and retail networks. The Hawaiian business serves fuel requirements for aviation, ground transportation, and power generation, so regional supply and demand for aviation coal, diesel and other products and transportation costs are particularly important for their profits.

The strong boom cycle has begun to translate into results: in the second quarter of 2026, the company's net profit reached US$462.1 million, compared to US$59.5 million in the same period last year; adjusted EBITDA rose from US$137.8 million to US$571.3 million. However, Hawaii's adjusted gross profit of 57 US dollars per barrel for the quarter included a favorable pricing time lag contribution of 11.49 US dollars, which cannot all be considered a profit level that can be replicated over a long period of time.

“Contributing to favorable pricing delays” means that price adjustments in sales contracts lag behind market changes and temporarily increase refining profits. For example, some contracts for refined oil products are settled at the average price of the previous month or week; when the market price falls, the company may still sell at a higher price than before, so the actual gross profit is higher than estimated at the current market price. Of the adjusted gross profit of $57 per barrel for Par Pacific's Hawaii business in the second quarter, about $11.49 came from this pricing time difference, accounting for about 20%. This portion of earnings will change with price trends and cannot be directly regarded as normal profitability; when prices rise, pricing delays may drag down profits.

The shortage of diesel fuels refining's super dividends, but shipping costs are dividing profits

For Par Pacific, energy supply risks have yet to recede. On October 15, Brent crude oil futures closed at $105.92 per barrel, a slight decrease of 0.1%; WTI rose about 3% to close at $97.97 per barrel. The decline in US inventories supports WTI, while attacks on Middle Eastern shipping, the escalation of the armed conflict between Saudi Arabia and the Houthis, and another Ukrainian attack on Russian refining facilities continue to disrupt energy transportation and the supply of refined oil products. Although the International Energy Agency has agreed to release more than 20 million barrels of diesel, and the US is also considering easing some shipping restrictions, these measures are mainly used to ease supply pressure, and are not enough to prove that geographical risks have systematically subsided.

The difference in diesel cracking prices directly reveals the beneficiary mechanism of refining companies. ING disclosed that the ICE diesel cracking price spread on October 7 was about 73 US dollars/barrel. Although it was slightly lower than the level of 90 US dollars in September, it was still significantly higher; the relief from the release of reserves on the market in recent months was even more obvious, and the forward price difference was still supported by tight supply. For refining companies, the real key is the price difference between products such as diesel and aviation coal compared to crude oil, rather than a unilateral rise in crude oil prices: when refineries are damaged and exports are blocked, refined oil products are more scarce than raw materials, and refineries that can maintain production have the opportunity to obtain higher processing profits.

Whether a high cracking spread can be converted into a high profit depends on how much price difference the company actually keeps. The geographical isolation of the Hawaiian market can raise import substitution costs and support the sales price of local products, but refineries also rely on shipping for raw materials. Freight, insurance, and route adjustments also drive up crude oil landing costs. Therefore, a strong European diesel benchmark does not mean that Par Pacific can increase its net profit in the same proportion. Goldman Sachs is concerned about this difference: the industry's profit forecast is still improving, yet the company may lag behind its peers due to eroding transportation costs, or even face a decline in unanimous market expectations.

On October 9, some media quoted data reports provided by ship broker SSY at LSEG as saying that the VLCC chartering fee for carrying 2 million barrels of crude oil from the US Gulf of Mexico to China rose to about 80 million US dollars, equivalent to 40 US dollars per barrel, up about 365% from 8.60 US dollars before the war broke out in February. Citing Clarksons data, Ming also pointed out that the average daily earnings of global crude oil turbines exceeded 500,000 US dollars in early October, reaching about 10 times the 2025 average. The shortage of detours, ship-to-ship transfers, and compliant ships continues to occupy effective capacity, which means that refineries that rely on marine raw materials must pay higher crude oil landing costs. The increase in profits brought about by high diesel cracking price differences may also be partially swallowed up by transportation costs.

There is also a pace of implementation of favorable policies. The exemption for small refineries mainly reduces the compliance burden under renewable fuel standards, including the cost of relevant RIN compliance certificates. Par Pacific previously received partial annual exemptions and confirmed related revenue of approximately US$199.5 million in 2025, indicating that the profit value released by the policy is already quite impressive. As this part of value is recognized by the market, stock prices rise further, requiring the Hawaiian business to maintain higher profits under a normal boom level or transform its ability to generate cash into significantly stronger shareholder returns; policy dividends that have already been realized through repeated transactions alone will gradually weaken.