Analysis: Perfect Time to Be an Oil Refiner?


   
Miguel E. Andujar
DTN Refined Fuels Market Reporter

   DAVENPORT, FL (DTN) -- Reduced global refining capacity, disruptions in 
Russia and the Middle East and rising demand for domestic fuel exports have led 
to record margins for U.S. refiners, suggesting there could not be a better 
time for the industry.

   Tightening supplies of diesel, gasoline and jet fuel indicate that refiner 
fortunes could only get better.

   The evidence is already overwhelming. The average U.S. 3-2-1 refining crack 
spread stood at $65.77 bbl Thursday (9/17), more than double its comparable 
2025 level, according to DTN market data. That benchmark hit a record $75.31 
bbl on August 28.

   "Crack spreads are roughly twice as high as before the Iran war, for some 
products almost three times as high," noted DTN analyst Karim Bastati. "Soaring 
tanker rates have somewhat cut into margins, but for U.S. refiners, they make 
up only a small fraction of total input costs."

   Of the 3-2-1 crack, margins for diesel and heating oil, which account for 
roughly one-third of a barrel's output, have demonstrated the strongest 
performance. The NYMEX ultra-low sulfur diesel (ULSD) crack against West Texas 
Intermediate (WTI) crude stood at $111.63 bbl Thursday after touching a record 
$117.92 bbl Wednesday (9/16). Year-to-date, the ULSD crack has more than 
doubled to average $68.82 bbl.

   The performance highlights an unusual point in refinery economics: the 
premium for converting a barrel of WTI into diesel has become greater than the 
value of the raw crude barrel itself.

   Refining capacity and finished fuel availability have become separate market 
constraints. That dynamic is reinforced each time WTI futures fall while diesel 
and other refined products hold steady or rise.

   Gasoline, which accounts for the largest volume of a refined barrel, has 
also seen higher margins. The RBOB-WTI crack stood at $42.84 bbl Thursday, 
averaging $38.89 bbl year-to-date compared with $21.60 bbl in 2025.

   Jet fuel has tracked the same trajectory. The U.S. Gulf Coast jet crack 
reached $89.04 bbl Thursday, after hitting $104.38 bbl Wednesday. The metric 
has averaged $58.62 bbl so far this year, more than double its 2025 pace, as 
the Gulf Coast feeds both domestic demand and international markets.

   "Refiners have been making the most of their limited wiggle room," said 
Bastati, observing that as U.S. jet fuel production tapers from record highs 
due to the war's impact on commercial aviation, diesel has re-emerged as the 
"cash cow" as focus returns to maximizing middle distillate yields.

   The margin strength across fuels comes as U.S. refiners run at near maximum 
capacity. National utilization held near 97% during the week ended September 
11, with gross crude inputs above 17 million bpd, U.S. Energy Information 
Administration (EIA) data showed.

   Limited Capacity

   Those familiar with the workings of the industry expect refiners to try and 
squeeze more diesel out of their plants in the coming months, although there 
are limits to what can be achieved.

   "It is unlikely to see the nationwide utilization going above 100% in 4Q as 
there is scheduled maintenance that must be done," even if those turnarounds 
are deferred, Andy Lipow, president at Lipow Oil Associates in Houston, told 
DTN.  

   Market response has also been limited by a drop in domestic refining 
capacity.  U.S. operable crude distillation capacity totaled 18.2 million bpd 
at the start of 2026, down more than 250,000 bpd year-over-year with the 
closure of LyondellBasell's Houston, Phillips 66's Los Angeles, and Valero's 
Benicia refineries.

   "In some cases, refineries are able and have made relatively small 
investments to incrementally increase their throughput capacity," Lipow noted. 
"However, if one wanted to add hundreds of thousands of barrels per day of 
capacity, one is looking at new refinery construction."

   Supportive Outages

   Global throughput has suffered similar constraints. Middle East conflict and 
drone strikes targeting six major Russian refineries, which account for half of 
Russia's diesel output, have choked off international middle distillate flows.

   The loss of Russian and Middle Eastern supply has been critical for Europe, 
which increased its reliance on imported fuels following 2023 sanctions. That 
structural shift has pulled heavily on U.S. fuel supplies at the same time 
domestic capacity has shrunk.

   EIA data show that U.S. distillate exports averaged a record 1.56 million 
bpd in Q2, some 30% above the five-year average, while jet fuel exports more 
than doubled to 356,000 bpd. Overseas demand remained robust into September, 
with four-week average distillate exports hovering at 1.674 million bpd.




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