Valero Energy (NYSE:VLO) +4.3% in Thursday’s trading after racing past Q4 profit estimates and then saying it expects elevated product margins will continue.

“We expect low product inventories and continued increase in product demand to support margins, particularly for U.S. coastal refiners,” CEO Joe Gorder said during the company’s earnings conference call.

Valero (VLO) said its 14 crude oil refineries operated at a 97% capacity utilization rate in Q4, the highest since 2018, while refining margins more than doubled to $6.3B from the prior-year quarter.

The company plans to operate at 85%-88% of total throughput capacity of 3M bbl/day in Q1, with the drop attributed to a heavy maintenance schedule, which is “normal for us,” COO Lane Riggs said. “That’s when we do turnarounds. This is a heavy quarter for us vs. the rest of the year.”

Valero (VLO) plans to begin the initial startup of a new coker at its 335K bbl/day Port Arthur refinery in Texas between late April and early May, Riggs said.

The monthly WTI 3:2:1 crack spread is $38.30/bbl on average so far in January, ~$2/bbl higher than the average Q4 spread, and China’s reopening should start contributing to “significant demand recovery” starting in Q2, Valero (VLO) execs said on the call.

Meanwhile, distillate fuel inventory remains low globally, and Europe’s pending February import ban on Russia’s petroleum products could further tighten the market.

Distillate markets should still see a “lot of tightness” and jet fuel demand should increase “significantly” this year, Gorder said.

BMO Capital last week upgraded Valero (VLO) to Outperform, expecting structurally higher refining margins will continue in 2023.