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As Energy Surges on Crack Spreads, Consider Taking Gains on 2 Small Cap Oil Stocks
Reported by Dan Schmidt. Posted: 3/24/2026.
Key Points
- Crude oil prices have surged since the start of the Iran War, boosting the stocks of oil and gas companies across the industry.
- One unlikely beneficiary has been downstream refiners that benefit from large crack spreads, which measure the difference in raw and refined petroleum products.
- If these spreads normalize quickly, refiner margin compression will follow, so it might be time to take profits on these two soaring small-cap refiners.
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Oil and gas stocks have surged since the start of the Iran conflict, largely because the Persian Gulf plays a vital role in global oil flows. Approximately 20 million barrels per day pass through the Strait of Hormuz — roughly 20% of world supply.
But the real story for investors goes beyond rising crude prices: refiners are benefiting from an unusual gap between crude and refined product prices — diesel, gasoline and jet fuel. Known as crack spreads, these gaps have propelled downstream oil stocks, especially in the United States.
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Why Crude Prices Can Matter Less for Downstream Companies
If you've passed a gas station lately, you've likely done a double-take at how quickly prices have jumped. According to AAA, the average national fuel price in the United States is currently $3.94 — up more than $1 in just a month.
But unless you drive a diesel vehicle, you've probably paid less attention to diesel prices, which have climbed even faster. Crack spreads help explain why the energy sector is divided into upstream, midstream and downstream companies:
- Upstream: Companies that directly benefit from higher oil prices by extracting oil.
- Midstream: Companies that operate the infrastructure connecting upstream to downstream — transportation, storage and processing.
- Downstream: Companies that refine, process and market finished products, including gasoline, diesel and petrochemicals.
Downstream firms don't necessarily benefit simply from high crude prices. Instead, their fortunes depend on the crack spread — the difference between crude and refined-product prices. While crude has surged since the Iran conflict began, downstream companies have been insulated because crack spreads widened after Persian Gulf refining capacity went offline, boosting refiners' margins.
Many market participants had expected a short confrontation, but now that the fighting appears entrenched, industry stocks have gone parabolic. That rally, however, risks ignoring margin headwinds that could appear just as quickly as crack spreads widened.
Some catalysts to watch:
- If the Strait of Hormuz reopens: Crude prices could stay elevated while refined-product supplies resume more quickly, putting downward pressure on wholesale gasoline and diesel prices and compressing refiner margins.
- Demand destruction from prolonged shocks: Extended high crude prices can slow economic activity. If travel and industrial demand fall, purchases of refined fuels would decline, reducing refiners' revenue.
On top of these risks, governments are releasing crude from strategic reserves to limit price spikes, which could help normalize spreads. Meanwhile, China's policy decisions matter as well — if it ramps up gasoline and diesel exports to Europe and Asia, U.S. refiners' margins could compress quickly.
2 Oil and Gas Stocks That Don't Want Spreads to Normalize
Large-cap refiners often offset spread volatility with hedging programs and stronger balance sheets. Small-cap refiners typically lack those safety nets, so a quick crack-spread reset could prompt sharp repricing.
Here are two small-cap downstream stocks where taking profits could be prudent.
CVR Energy: Beware the False Breakout
CVR Energy Inc. (NYSE: CVI) is already up more than 60% this month on strength in petroleum and fertilizer prices.
The company's Petroleum Products division refines crude into diesel, gasoline and jet fuel, while its Nitrogen Fertilizers segment produces ammonia and urea for agricultural use.
Before the Iran conflict began, CVR reported a year-over-year revenue decline of 7% in Q4 2025, so the recent price shock has been a timely boost.
CVI shares have punched through their 50- and 200-day moving averages in recent weeks, but the rally now looks fragile.
The Relative Strength Index (RSI) sits above 76 — firmly in overbought territory — and nearly 6% of the float is sold short, so the move may be partly driven by short covering. Despite the rally, five of the six analysts covering CVI rate the stock a Sell.
PBF Energy: Earnings Beat Could Be a Ticking Time Bomb
Unlike CVR, PBF Energy Inc. (NYSE: PBF) got a company-specific tailwind from its Q4 2025 results, which helped fuel a parabolic rally.
Although revenue targets were missed, earnings of 49 cents per share beat expectations for a 15-cent loss.
Management said crack spreads were already benefiting the company before the initial strikes against Iran.
The stock is up more than 80% so far in 2026, including a gain of over 40% in the past month alone.
Now that the earnings lift is fading, technical headwinds are appearing. With short interest above 20%, recent volatility may reflect short-covering and speculative flows. The RSI is overbought, and a double-top pattern is forming on the daily chart.
Insiders sold more than $300 million of PBF shares in Q1 with little insider buying, and analysts continue to rate the company a Sell — the consensus price target sits more than 30% below current levels.
Can Capital One Prove Itself in 2026?
Authored by Peter Frank. Publication Date: 3/29/2026.
Key Points
- Capital One is expanding aggressively, but integration risks and credit trends create uncertainty for near-term profitability.
- The Discover acquisition positions the company as a payments network competitor, potentially reshaping its long-term business model.
- Shares are down roughly 25% this year, reflecting investor caution despite strong revenue growth and projected upside.
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Capital One Financial (NYSE: COF) has a lot to prove this year. The lender and payments company reported higher-than-expected revenue at the end of last year and is digesting its $35 billion acquisition of Discover Financial. At the same time, its fourth-quarter earnings missed estimates, and it's now integrating another acquisition.
The question is whether the additional book of business, anticipated cost savings, and potential efficiencies can translate into meaningfully better profits and a higher stock price for shareholders.
A Transformational Year Driven by Acquisitions
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Capital One also agreed to buy Brex Inc. for $5.15 billion, adding another layer of near-term risk. Brex, a fintech focused on startups and other businesses, brings a different customer mix and integration challenges (see background).
Strong Financial Results Mask Integration Challenges
Last year's results showed signs that Capital One could absorb a large deal while delivering growth. In 2025's fourth quarter, Capital One reported net income of roughly $2.1 billion and adjusted earnings per share of $3.86. Including Discover's results, net interest income rose 54% while total revenue climbed 53% year over year. Net interest margin increased 123 basis points to 8.26%.
For the full year, adjusted earnings per share were about $19.61 — a solid showing during a massive acquisition while also building loan-loss reserves. The bank set aside $20.7 billion in reserves for potential credit losses over 2025, with the largest increase occurring in the second quarter. Pre-provision earnings for the full year rose 30% to $22.9 billion.
Stock Performance and Shareholder Returns in Focus
The share price has reflected investor uncertainty. The stock is down roughly 25% this year after hitting a 52-week high near $260 in early January. At its current level, analysts rate Capital One as a Moderate Buy, with 16 Buy recommendations and six Holds. The average price target is $275.95 — an attractive upside of roughly 50% from recent prices.
Although Capital One is not a high-yield dividend stock, it has not ignored income investors. The company raised its quarterly dividend by one-third to $0.80 per share in late 2025, which equates to a mid-1% yield at recent prices. The board also approved a new $16 billion share repurchase program in October 2025.
Credit Risks and Competitive Pressures Build
Even with the scale and potential efficiencies from recent acquisitions, the outlook is far from certain. In the fourth quarter, Capital One's provision for credit losses rose to about $4 billion amid higher card delinquencies and charge-offs. Because the company's loan book has historically been concentrated among mass-market consumers, earnings could be pressured if unemployment rises or inflation remains elevated.
Being among the top payments players in the U.S. does not reduce competitive pressure. Digital-native lenders, fintech networks, and other financial-services firms continue to push the boundaries of user experience and pricing. Capital One will likely need to invest heavily in technology, marketing, and compliance in areas where it previously competed less — and those investments could make it harder to convert revenue growth into bottom-line gains if integrating Discover proves more costly than planned.
Investors should also remember that large, integrated players attract more regulatory and antitrust attention. Any changes to interchange fees, capital requirements, or consumer-protection rules could add new costs or constrain revenue, even if such changes seem unlikely today.
Can Vertical Integration Deliver Long-Term Growth?
Even with the Brex deal still pending, the Discover buyout is what sets Capital One apart from other large card issuers. By acquiring Discover's closed-loop payments network, Capital One controls both the lending side and the infrastructure that processes transactions.
Management highlights three main benefits: network fee revenue, greater opportunities to cross-sell cards and deposits, and cost savings. Discover has already shuttered student loans and home-equity lines and executed extensive layoffs as part of the integration.
Over time, this could shift Capital One from a card-focused lender to a vertically integrated payments and banking franchise. If management can realize the promised synergies and execute the integrations smoothly, Capital One could be a company worth watching.
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