Global refining margins have hit multi-year highs in November due to sanctions on Russia, refinery outages and maintenance, according to LSEG data and analysts, and some see little respite without more plants being built in the Western world.
The strength in margins contrasts with crude oil markets coming under pressure from an expected oversupply, and has defied expectations earlier this year that the rally could prove to be a short-term blip due to the impact of tariffs.
In the U.S., the 3-2-1 crack spread, a key measure of overall profitability, hovered at $32.13 a barrel on November 18, close to an earlier high which was the highest since March 2024. Asian margins have eased from a 20-month high, while gasoline cracks were close to their highest since early 2024 on November 14.
Ukrainian drone attacks on Russian oil refineries and pipelines have disrupted operations. Plants have closed in the United States and Europe. Nigeria’s Dangote refinery has had maintenance while others in Asia and the Middle East, such as Kuwait’s largest refinery Al-Zour – have had outages.
REFINING SQUEEZE SET TO PERSIST
The strong refined fuels market has helped keep Brent crude prices supported in the low-to-mid-$60s per barrel despite expectations of an oversupply due to OPEC+ rising production and increased supply from other countries.
“The growing differentials between the crude prices and product prices are unlikely to see any relief for the time being,” said John Evans, analyst at PVM Oil Associates.
“It is a refining problem, and one that will be with us in the foreseeable future unless new plants are built in western economies – a very unlikely event.”
EUROPE PARTICULARLY STRONG
European diesel margins reached $33.90 on Tuesday, the highest since September 2023. Physical Eurobob gasoline barges had inched slightly lower to a $23.36 premium to Brent crude according to LSEG data but were close to a 26-month high reached last week.
The International Energy Agency last week raised its forecast for European refining throughput by 290,000 barrels per day for November and December due to strong margins, as Russian disruptions tighten middle distillate markets.
“The high margins are already pricing in a lot of disruption and giving refineries everywhere a strong incentive to ramp up runs,” said Eugene Lindell of consultant FGE, especially as they come out of maintenance season.
Global refining profitability rose to the highest in two years on average in early November, the IEA said.
MAJORS REAP REFINING WINDFALL
Oil companies, some of which warned earlier in the year that 2025 would be a bad one for refining, have benefited from the stronger margins in their third-quarter earnings.
French major TotalEnergies’ downstream profit jumped by 76%, and the latest U.S. sanctions on Russian producers Lukoil and Rosneft would push refining margins and oil prices higher in the fourth quarter, Total CEO Patrick Pouyanne said.
STRUCTURAL DIESEL SHORTAGE PERSISTS
Strength in diesel cracks in Europe was the main driver of the rally, said Susan Bell of Rystad Energy.
Europe remains structurally short diesel, and recent regional refinery closures will exacerbate import requirements, the IEA highlighted.
Morgan Stanley said in a report they expect European diesel cracks to hold above $27 a barrel over the next six months – higher than they have been for most of the time since early 2024, according to LSEG data.
In the U.S., margins have also hit highs. U.S. diesel margins widened to $49.12 a barrel on Tuesday, the highest since October 2023.
(Reporting by Seher Dareen and Robert Harvey in London, Mohi Narayan in New Delhi, Nicole Jao and Shariq Khan in New York; editing by Alex Lawler and Ros Russell)