Oil Refiners Profit as Market Stays Volatile

Oil prices are climbing again, with the United States Oil Fund (AMEX:USO) jumping 3.91% to 123.96 on the day, even as crude itself sits well below its wartime peaks earlier this year.

Refiners Cashing In While Crude Stays Cheap

Something unusual is happening in the oil patch. Crude has slid back toward levels seen before the Iran conflict flared up, yet gasoline, diesel and jet fuel prices have refused to follow it down. That gap has handed refiners one of the richest profit stretches in years. The benchmark U.S. 3 to 2 to 1 crack spread, the standard measure of how much money a refiner makes turning crude into finished fuel, recently pushed above 60 dollars a barrel, a record. Europe and Asia are seeing comparable gains, meaning almost every barrel processed right now throws off outsized returns simply because raw crude has gotten cheap faster than the fuels made from it.

Why Crude Suddenly Got Cheaper

The turning point came in mid June, when Washington and Tehran struck a ceasefire that reopened the Strait of Hormuz after months of disruption. Hundreds of millions of barrels had piled up on tankers and in storage across the Gulf during the closure, and once ships could move again, that stockpile started flowing back into the market. Kpler data show Middle Eastern crude exports jumped to more than 12 million barrels a day in June, up from under 8 million bpd in May, with July shipments expected to climb even further as producers drain storage and bring shut fields back online.

That flood of supply has dragged Brent crude back to roughly 70 dollars a barrel, close to where it traded before the conflict began in late February and some 50 dollars below its wartime highs. Physical cargoes have fallen even harder, since Gulf exporters are now undercutting each other on price to find buyers.

Fuel Inventories Haven't Caught Up

Refiners are buying that cheaper crude into a fuel market that never fully healed from the war's disruptions. Months of halted refinery runs, shipping delays and emergency exports drained gasoline and diesel stockpiles worldwide, and rebuilding those reserves takes far longer than simply unloading crude that had been sitting on tankers. A cargo can reach a refinery in a matter of weeks; restoring fuel inventories across several regions takes months.

The strain shows clearly in the United States. Gasoline stocks entered the summer driving season at their lowest seasonal level in more than a decade, after domestic refiners had ramped up exports during the Hormuz shutdown to plug shortages overseas. Gasoline crack spreads have since surged past 56 dollars a barrel, nearing levels last touched during the 2022 energy crunch that followed Russia's invasion of Ukraine.

Russia's Refining Losses Are Squeezing Diesel

Diesel tells a similar story, but the culprit there is Ukraine's campaign against Russian energy infrastructure. Kyiv has spent months hitting Russian refineries, storage terminals, fuel trains, tankers and export facilities. Energy Aspects estimates put Russian crude processing at its lowest level in more than 21 years, with refinery runs averaging just 3.91 million barrels a day this month, over 1.4 million bpd below the same period last year.

Recent strikes have hit the Syzran refinery, a fuel train, ten Russian tankers, four ferries and the NOVATEK Ust Luga processing complex, adding to repeated damage at larger sites such as Omsk. Moscow has responded by restricting gasoline and diesel exports and admitting to domestic shortages: long lines at filling stations, fuel rationing in some regions, and even jet fuel imports after years of being a net exporter. Europe feels this acutely, since Russian diesel was once one of its biggest import sources and substitute barrels are getting harder to find.

Can This Disconnect Between Crude and Fuel Prices Last?

The crude market is absorbing a temporary glut from the Hormuz reopening, while the fuel market is still digging out of months of depleted stockpiles and ongoing refinery outages in Russia. Those two forces rarely stay out of sync for long. If refiners keep running at full tilt to capture today's margins, crude demand will rise with every barrel processed, gradually working off the surplus that built up during the closure. Gulf producers are unlikely to keep offering steep discounts once inventories normalize.

Whether fuel prices ease back depends largely on what happens in Russia. Every effective Ukrainian strike delays the return of Russian diesel exports and stretches out the inventory rebuild further. Several Middle Eastern refineries are also still running below capacity after conflict related damage, slowing how fast new supply can reach buyers. For now, refiners remain parked in the narrow space between a recovering crude market and a fuel market still catching up, a position that has proven remarkably profitable.

Live crude oil price and chart →