US refiners are currently enjoying unprecedented profit margins, largely due to ongoing global fuel supply constraints. The average per-barrel margin for producing gasoline and diesel, known as the "3-2-1 crack spread," soared to a record high of $70 a barrel. This surge in profitability is attributed to disruptions in fuel supply chains stemming from geopolitical conflicts and a persistent imbalance between supply and demand.
Despite record-high refining margins, the global fuel crunch is far from over. US refineries processed 17 million barrels of crude oil per day last week, marking the highest weekly average since September 2019. However, even this elevated output has been insufficient to alleviate the soaring prices, especially for diesel. The strong demand for US fuel exports, particularly from international buyers impacted by the Iran war, has contributed to record export levels and a drawdown of domestic fuel stockpiles.
The global fuel shortage is multifaceted. Key contributing factors include the war in the Persian Gulf, which has disrupted crude and refined product exports from Gulf states. Additionally, refinery closures in Western countries and stricter fuel export policies in China are limiting global supply. Russia's temporary ban on diesel exports has further exacerbated the diesel shortage, a critical fuel for various industries and heating, especially as Northern Hemisphere countries begin stocking up for winter.
The high refining margins are incentivizing refiners to operate at maximum capacity, leading to significant draws on crude inventories. The diesel crack spread settled at over $91 a barrel, a new record, while the gasoline crack spread reached about $59 a barrel, a level last seen in June 2022. Analysts suggest that encouraging refiners to prioritize gasoline production would require higher retail and wholesale gasoline prices relative to other fuels. US gasoline inventories have significantly decreased, falling over 1.5 million barrels to 210.5 million barrels, which is 14 million barrels below the five-year seasonal average and the lowest for this time of year since 2012. US national average retail gasoline prices stood at $3.95 a gallon, nearly $0.80 higher than the previous year.
