Refiner Profits Are Soaring in Sign of Lingering Hormuz Snarls

iv[py]s(tv[3rv7ft4dorle7_media_dl_1.png Nymex, Bloomberg

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(Bloomberg) — US crude refiners are enjoying some of the best profit margins in years, the latest sign that even as energy shipments pick up through the Strait of Hormuz, there are lingering supply-chain kinks still rippling through global markets. 

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The spread between the price of a barrel of gasoline and a barrel of crude oil — known in the industry as the gasoline “crack spread” — is still topping $53 a barrel, near the highest since June 2022.

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Meanwhile, the most common measure of refiner profitability, the margin earned from turning three barrels of crude into two barrels of gasoline and one barrel of diesel, has remained persistently high, well over double where it stood before the Iran War broke out. And the diesel crack spread is also considerably elevated from pre-war levels, though it has cooled from recent highs. 

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The elevated margins come even as crude prices have dropped and as US processors have run their facilities at maximum capacity. The higher crack spreads signal that global refining capacity is still tight in the aftermath of the shuttering of Hormuz, a critical shipping route for global energy markets.

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“If the refining industry was tight going into the war, it makes sense that it’s still tight coming out of it, too,” said Sam Margolin, senior equity research analyst at Wells Fargo. 

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“I wouldn’t say I’m surprised by how durable refining margins have been,” he said. Refiner margins, Margolin added, typically lag crude oil prices, both on the way up and down.

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To be sure, those spread numbers factor in the soaring prices of credits to the meet government-mandated renewable fuel standard, meaning that margins aren’t quite as high as they seem.

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Even then, there are signs of tight supplies and robust demand across US fuels. 

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Diesel supplies remain tight on the heels of a global supply crunch and a loss of Russian production following a string of Ukrainian attacks on refineries.

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In gasoline, prices are still elevated thanks to “resilient” domestic demand, high export levels, an industry-wide focus on producing diesel and jet fuel at the expense of gas and atypically low stockpile levels for early summer, according to a note from Rapidan Energy. Other factors, such as unplanned refinery outages on the East Coast, are also supporting prices. 

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Stubbornly high gasoline prices have caught the attention of US President Donald Trump, who has focused his ire on retailers, urging them to target “around the $2.50 a gallon number.” Nationally, pump prices are currently averaging just above $3.80. And while higher margins will encourage refiners to keep their run rate near maximum levels, it will take a further easing in global supply constraints to see American gasoline prices continue to cool.

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