Key facts
- Refining margins for gasoline and diesel have reached record highs, outpacing crude oil price spikes.
- Global supply of refined products is tightening due to geopolitical conflicts and low inventories.
- Russia's ban on diesel exports and Ukrainian drone attacks on refineries have impacted supply.
- U.S. commercial oil stocks are below the five-year average, and Strategic Petroleum Reserve levels are at multi-decade lows.
- Delays in crude deliveries to Asia are expected due to risks in the Strait of Hormuz and Bab el-Mandeb.
Despite a recent slump in crude oil prices, the market for refined fuels like gasoline and diesel remains exceptionally tight, with refining margins reaching record highs. This divergence is driven by a complex interplay of factors, including geopolitical tensions in the Middle East and Ukraine, Russia's export restrictions, and persistently low global fuel inventories.
While crude oil futures often reflect market sentiment and future expectations, the real-time situation for refined products is evident in their supply, prices, and refinery throughput. Record-high refining margins have persisted even as crude prices have fluctuated. Factors contributing to this include the re-escalation of Middle East hostilities, Russia's ban on diesel exports aimed at addressing domestic shortages exacerbated by drone attacks on its refineries, and dwindling fuel stockpiles worldwide.
In Europe, diesel refining margins surged to over $60 per barrel, and gasoline traded at a four-year premium to crude. The United States has also seen record profitability for refiners, with the prompt NYMEX 3-2-1 crack spread contract hitting all-time highs near $64. These elevated margins are occurring despite high refinery utilization in the U.S., as global fuel markets are tight due to low inventories and significant supply disruptions in the Middle East.
U.S. commercial oil stocks remain below their five-year average, with critically low levels in the Strategic Petroleum Reserve. This tightening is further evidenced by a 26% jump in U.S. wholesale diesel futures in July. Asian refiners are also facing potential disruptions to crude deliveries due to increased risks in the Strait of Hormuz and the Bab el-Mandeb strait, which could impact their planned processing rates.
Analysts warn that these tight fuel markets could exacerbate inflation and impact global economies, which rely heavily on diesel for essential activities. The International Energy Agency (IEA) has cautioned against complacency regarding oil security, noting that refinery activity and product supplies have not kept pace with crude deliveries, leading to considerably tighter markets for refined oil products.