Valero hopes to complete the cash and stock deal by Dec. 31, but it could face regulatory hurdles because both Valero and Premcor operate large refineries in the Northeast.

Shares of Premcor jumped 18 percent, up $10.70 to $69.70, and Valero shares gained 83 cents to $75.87.

Valero Chairman and Chief Executive Officer William Greehey predicted that antitrust regulators will approve the acquisition because they let Sunoco Inc., the largest refiner in the region, buy a New Jersey refinery from El Paso Corp. last year.

If not, Valero could walk away from the deal, Greehey suggested.

"We would not sell any major assets at Valero," he said.

San Antonio, Texas-based Valero said yesterday it would buy Premcor's four refineries in a move that will increase the capacity of its refinery network by nearly one-third.

The transaction would boost Valero's annual revenue to nearly $70 billion, enough to rank No. 15 on the Fortune 500 list of the nation's biggest companies.

Valero, whose first-quarter earnings more than doubled from a year earlier, said the deal would be good for the company and also help consumers because the it would increase the capacity of the Premcor refineries.

However, Cal Hodge, an energy consultant who used to work at Valero, said the deal wouldn't make much difference to motorists for a long time.

"Both of these refinery systems are running pretty much all-out," he said. "You're not going to change the amount of gasoline that's getting out there."

Hodge and industry officials said supplies will remain tight until the easing of environmental regulations, which they blame for the lack of new refineries.

The Valero deal is the latest in a long run of mergers and takeovers in the industry and reflects growing optimism that refiners, once considered a low-profit business, will be helped for several years by strong energy demand.

"It's a terrific deal if refining margins don't collapse," said Fadel Gheit, an analyst with Oppenheimer & Co. He said refiners' return on capital has risen from mid-single digits to above 15 percent with no signs of slowing.

Valero has carved out a niche as a refiner of lower-quality crude, and that helps explain its interest in Premcor.

Most refiners crave low-sulfur "sweet" crude, which is easy to process and yields the most volume per barrel of the transportation fuels in greatest demand. For that reason, it is the most expensive oil on the market.

But Valero is a major consumer of "heavy" and "sour" crudes, which it buys at a discounted price. It then earns a handsome markup when selling the finished petroleum products such as gasoline. Two of the Premcor refineries process heavy crude.

Valero said it would issue $3.5 billion in stock and pay $3.4 billion in cash, plus assume about $1.8 billion in Premcor debt. The purchase price represented a 20 percent premium over Premcor's stock price over the past 30 days.

Valero would get Premcor's refineries in Port Arthur, Texas; Memphis, Tenn.,; Delaware City, Del.; and Lima, Ohio.