U.S. refiner margins have continued to set new records, with the 3-2-1 crack spread, a key profitability benchmark, closing at a record $69.66 a barrel. The gasoline crack spread settled at about $59 a barrel, a level last seen in June 2022, while the diesel crack spread hit a record high of over $91 a barrel. These high margins are driven by low stockpiles and worsening geopolitical tensions, particularly in the Middle East, which threaten global fuel supplies. Analysts suggest that even higher gasoline prices might be necessary to incentivize refiners to prioritize gasoline production over other fuels.
Gasoline inventories in the U.S. are a growing concern, having fallen over 1.5 million barrels to 210.5 million barrels in the week ending July 10. This is down over 42 million barrels since February 27 and about 14 million barrels below the five-year seasonal average, marking the lowest motor fuel stockpile for this time of year since 2012. Conversely, U.S. diesel stockpiles rose 4.5 million barrels last week to over 102 million barrels, though they remain below seasonal averages and February levels. The imbalance is partly due to refiners favoring diesel and jet fuel production, which have had higher yields, and the impact of the Iran war, which led to a sharper decline in gasoline stockpiles compared to diesel.
Despite these low inventories, U.S. refineries have been running at a high capacity, processing their largest amount of crude in the second quarter since 2019, with some operating at 96% of capacity last month. However, a significant portion of American-produced fuel, including jet fuel for Europe and diesel for Asia and Australia, is being exported to fill global supply gaps. This, combined with rising domestic demand for gasoline during summer travel and impending peak diesel demand for the fall harvest, is contributing to the supply-demand imbalance and driving up prices. U.S. national average retail gasoline prices stood at $3.95 a gallon, up nearly $0.80 from last year, and had surged to $4.56 per gallon in May due to disruptions from the blockade of the Strait of Hormuz.
The ongoing military conflict in the Persian Gulf has had a direct impact on fuel prices. Oil prices are up 16% since the start of the war, while gas and diesel prices have risen more than 32%. Refinery capacity globally was diminished by the war, with 2.1 million barrels of refining capacity remaining offline, exacerbating supply issues. Extreme summer heat also poses a challenge for refineries, as they require cool temperatures to operate efficiently and produce fuel. Analysts warn that even more pain may be in store for U.S. motorists before refiners shift their focus to increasing gasoline output.
