Can Phillips 66 Reach Its $5.50 Refining Cost Target in 2027?

Phillips 66 PSX is an integrated downstream energy company with operations spanning midstream, chemicals, refining, marketing and specialties, and renewable fuels. The refiner is targeting annual refining adjusted controllable costs of about $5.50 per barrel in 2027, excluding turnaround expenses and assuming Henry Hub natural gas prices of $3 per million British thermal units. PSX is close to its objective, with second-quarter 2026 refining adjusted controllable costs at $5.57 per barrel.

Management is pursuing more than 200 refining initiatives aimed at lowering operating expenses across the system. These efforts center on energy efficiency, process simplification, reliability and stronger utilization of available processing capacity. Projects at Bayway, Ferndale and Wood River are each expected to reduce annual operating expenses by more than $1 million, supporting Phillips 66’s broader cost-reduction program.

The cost push is supported by strong refinery execution, with PSX reporting 96% crude-capacity utilization and an 86% clean-product yield in the second quarter. The company has streamlined its refining portfolio, improved yields and utilization and continued to pursue low-capital, high-return projects alongside reliability improvements. With current costs already tracking close to target levels and extensive optimization initiatives underway, Phillips 66 is well-positioned to realize its 2027 cost milestone of $5.50 per barrel.

MPC & VLO Highlight Refining Cost Discipline

Beyond Phillips 66, Marathon Petroleum Corporation MPC and Valero Energy Corporation VLO highlight how operating efficiency, refinery optimization and disciplined investment can strengthen downstream cost structures and margins.

Marathon Petroleum reported refining operating costs of $5.72 per barrel in the second quarter, higher than the $5.34 per barrel a year earlier, mainly reflecting lower utilization from planned Mid-Continent downtime. The company expects refining operating costs to moderate to $5.60 per barrel in the third quarter, pointing to potential improvement as operations normalize. MPC is pursuing shorter-cycle, high-return projects focused on margin enhancement and cost reduction, alongside refinery investments at Galveston Bay and Garyville scheduled through year-end 2027.

Valero Energy recorded refining operating expenses, excluding depreciation and amortization, at $4.70 per barrel of throughput in the second quarter, down from $4.91 per barrel a year earlier. The refiner processed about 2.95 million barrels per day while generating adjusted refining operating income of $16.56 per barrel, reflecting strong refinery economics alongside cost control. VLO is advancing the $230-million St. Charles Fluid Catalytic Cracking Unit optimization project, which is expected to begin operations in the third quarter of 2026 and enhance the refinery’s ability to produce higher-value products.

PSX’s Price Performance, Valuation & Estimates

Phillips 66 shares have gained 102.7% over the past year compared with the industry’s 82.7% growth.

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From a valuation standpoint, PSX trades at a trailing 12-month enterprise-value-to-EBITDA (EV/EBITDA) of 10.96X. This is above the broader industry average of 5.38X.

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The Zacks Consensus Estimate for PSX's 2026 earnings has remained constant over the past seven days.

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PSX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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