Hormuz windfall to be short-lived for refiners?
LONDON: Oil refiners around the world have seen profits surge thanks to a rare combination of robust fuel demand and weak crude prices, as markets
LONDON: Oil refiners around the world have seen profits surge thanks to a rare combination of robust fuel demand and weak crude prices, as markets have rapidly readjusted following the reopening of the Strait of Hormuz. The windfall is unlikely to last. The benchmark U.S. 3-2-1 crack spread, a widely watched measure of refining profitability, recently climbed above $60 a barrel, the highest level on record. Refining margins in Asia and Europe have also risen sharply.Refining profitability is determined by two factors: the cost of crude oil and the price of the gasoline, diesel and jet fuel produced from it. At the moment, both are moving in refiners' favour.CRUDE AWAKENINGWhen it comes to feedstock costs, the tide has turned dramatically since the U.S. and Iran signed an interim ceasefire agreement on June 17. Only last month, crude markets were grappling with an extreme supply shortage caused by the closure of the Strait of Hormuz. Today, the market is instead being flooded by hundreds of millions of barrels that had been stranded in the Gulf during the blockade. Total Middle East crude exports, including volumes shipped through ports in Saudi Arabia and the United Arab Emirates that bypass Hormuz, rose to 12.35 million barrels per day in June from less than 8 million bpd in May, according to Kpler data.
July exports are currently expected to reach 12.5 million bpd, Kpler estimates.Also read | China further eases fuel export curbs for JulyAlthough regional exports remain well below their pre-war average of around 18 million bpd, the sudden release of large volumes of crude has created a temporary glut. That shift is reflected in global benchmark Brent crude futures, which have retreated to around $70 a barrel, roughly where they traded before the Iran conflict erupted on February 28 and $50 below the wartime peak. Conditions in the physical market are even more bearish. Gulf producers, particularly Saudi Arabia and the UAE, are competing for market share, leading to aggressive pricing and discounts on cargoes.This dynamic could persist for months. Producers are not only releasing crude stored on tankers and in onshore facilities, but also bringing back oilfields that were shut during the conflict. The result is a growing wave of supply hitting a global market facing questions about demand growth.A RARE WINDFALLRefiners are also enjoying a windfall on the products side of the equation.Fuel prices remain remarkably strong, reflecting exceptionally tight inventories after months of disruption. In the U.S., the world's largest oil consumer, gasoline refining margins have surged by more than 60% since early June to over $56 a barrel, approaching the record highs seen during the energy crisis of June 2022 following Russia's invasion of Ukraine.
The BriefWire