Phillips 66 stock soared Tuesday. Shares were trading up 5.3% as of noon Tuesday, but ended the day up 2.65%. Yesterday, oil prices rose, but that is not the only factor that has caused Phillips 66 (NYSE:PSX) stock to rise.

Why we care

Oil and gas refiners are in high demand among analysts right now. Today, Roger Read from Wells Fargo (NYSE:WFC) raised Phillips 66’s stock price target to $127 per share from $114, citing strong earnings expectations for the refining giant’s second quarter.

This upgrade comes only one day after BMO Capital’s Phillip Jungwirth began coverage of the stock with an outperform rating and a price target of $132 per share. Jungwirth pointed out that Phillips 66 stock has underperformed its peers, and made a bull case for the refiner. The analyst sees the firm benefiting from high diesel prices and a wider difference between crude costs, WCS (Western Canadian Select), and WTI (West Texas Intermediate).

Among the most optimistic price targets for Phillips 66 stock are those set by Wells Fargo and BMO Capital. As of this writing, the oil company’s share price was $105 per share.

What now

Phillips 66 is an integrated oil and gas corporation with midstream, refining, chemical, and marketing operations. So it’s no surprise that Phillips 66’s midstream business is less sensitive to changes in the price of fossil fuels. But, on the other hand, higher oil prices are a significant concern for its refinery operation, transforming crude oil into end-use products like gasoline and aviation fuel.

Gasoline costs have gone up far more than oil and are now at all-time highs. That means refiners like Phillips 66 will need larger crack spreads, or refining margins, to maintain profitability in the wake of growing gasoline prices. As a result, the firm intends to use additional cash flows not just to reduce debt but also to resume share repurchases and increase dividends in the future.

Phillips 66 stock soared yesterday as investors simply bet on higher diesel and gasoline prices.

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