Oil companies, refiners hurt by refining margins

In a note to clients last week, investment bank Caris & Co. lowered its share-price target for Valero Energy Corp., North America's largest refiner, to $31 from $43.

"With pump prices continuing to hit new highs and consumers recognizing that gasoline prices are unlikely to retreat to $3/gallon on a sustainable basis, we believe the industry has entered into a period of sustained refined product demand destruction, particularly for gasoline," Caris & Co. said.

As such, Caris questioned whether Valero will be able to fund its 2008 capital budget and share repurchase program without selling some assets.

Shares of Valero and competitors Tesoro Corp. and Sunoco Inc., as well as some other refiners, have fallen sharply amid the tough conditions. Valero, Tesoro and Sunoco all are forecast to report sharply lower second-quarter results versus a year ago, according to Thomson Financial.

Valero shares rose $1.42, or 4.5 percent, to $33.14 in afternoon trading Tuesday, but they've traded as high as $77.86 in the past year. Tesoro shares rose 76 cents, or 4.9 percent, to $16.39, well off their 52-week peak of $65.98. Sunoco's pattern is similar: rising Tuesday by $1.12, or 3.4 percent, to $34.41 but down from a 52-week high of $84.29.