Is Phillips 66 (PSX) Still a Buy After Its Massive 2026 Rally?
Phillips 66 (NYSE:PSX) has spent much of 2026 outperforming both the broader energy group and the S&P 500. The stock is up roughly 79% year-to-date, and institutional interest is still building. According to the Insider Monkey database, 69 hedge funds held PSX positions at the end of the second quarter, with combined positions worth just over $5.6 billion. That compares with 64 funds and roughly $5.5 billion in the prior quarter.
The rally has been powered by an extraordinary surge in refining margins. When Phillips 66 reported second-quarter results on Aug. 5, it easily beat Wall Street estimates. U.S. gasoline and diesel crack spreads — the difference between what refiners pay for crude and what they get for finished fuels — hit record levels as supply disruptions tied to the Middle East conflict squeezed the market. The result was the company's strongest quarterly profit since Russia invaded Ukraine in 2022.
The company expects those conditions to persist for a while. Brian Mandell, Phillips 66's executive vice president of marketing and commercial, said on the earnings call that global refined-product markets are currently short about 7 million barrels per day of supply from the Middle East and Asia, with another 1.4 million bpd tied to Russian supply losses. "This really sets us up for stronger margins through Q3 and perhaps the rest of next year," Mandell said.
That supply-demand gap has become a major export opportunity for U.S. refiners. International buyers are competing for cargoes as Middle East exports remain under threat, and U.S. fuel exports have hit record levels this summer. Phillips 66 plans to run its refineries in the mid-90% range of combined capacity during the third quarter to take advantage of the demand.
Management is also using the windfall to fix the balance sheet. Net debt fell by nearly 25% sequentially to $16.5 billion in the second quarter, and the company remains on track to reduce it below $16 billion by the end of 2026. In addition, the board approved a $10 billion increase to the share repurchase program last month, a clear signal that management expects cash generation to remain strong.
Beyond the immediate margin upturn, the recently approved Western Gateway Pipeline system gives the company a longer-term growth angle. Phillips 66 will own 49.9% of the $5 billion joint venture, with Kinder Morgan and HF Sinclair owning the rest.
Wall Street has responded accordingly. Mizuho boosted its price target on PSX by $8 on Aug. 11, and analysts at Citi, Wells Fargo, Barclays and several other banks have raised their price objectives over the past few days.
Still, the easiest part of this move may be over. The extraordinary profits now hitting refiner income statements are a direct result of geopolitical disruption, not normal demand fundamentals. If a cease-fire takes hold and global crude and refined-product supply chains normalize, crack spreads could fall quickly. With that kind of run already baked into the stock, a good deal of optimism is reflected in the share price. A modest decline in margins or a weaker 2027 earnings outlook could trigger a sharp pullback.
Phillips 66 has legitimate near-term momentum: strong margins, a healthier balance sheet, higher shareholder returns and a new pipeline project on the way. Investors considering the stock, however, should weigh that momentum against the risk that refining economics eventually return to normal.
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Disclosure: None. This article is originally published at Insider Monkey.