Refinery margins approach 2022 record high

European refineries are entering a period of exceptionally high gasoline production margins. The spread between the price of Eurobob E5 gasoline and Brent crude futures exceeded $62 per barrel on Wednesday, approaching the record high set in June 2022. Margins are being driven higher by a combination of geopolitical conflicts, limited refined product supply, low inventories in Europe and expected autumn maintenance at US refineries.

According to trading data reviewed by Reuters, physical deliveries of Eurobob E5 gasoline were trading at around 14:20 GMT on Wednesday at a premium of approximately $62.07 per barrel over Brent futures. On Tuesday, the premium was “only” $55.62. The figure therefore approached the standing record of $62.10 per barrel from June 2022, when markets reacted to widespread disruptions to crude oil and fuel supplies following the start of the war in Ukraine.

Importantly, this spread should not be understood as refineries’ net profit. It is an indicator of refining margins that does not account for all costs associated with processing crude oil. However, its current level points to an exceptionally tight gasoline market.

Europe has little gasoline, US could worsen the situation further

Margins are also being supported by low inventories at the Amsterdam–Rotterdam–Antwerp (ARA) trading and storage hub. They fell to 752,000 tonnes last week, their lowest level since September 2021. The situation is further complicated by low water levels on the Rhine, which are restricting the transport of supplies by barges and further tightening supply in the Atlantic basin.

Europe is a net exporter of gasoline and sends a significant share of its output to the United States, where the summer driving season marks peak demand. Subsequent autumn maintenance at US refineries could further constrain supply. If US refineries begin their planned shutdowns, the market could become even tighter. Conversely, if they postpone them, analysts say the risk of operational failures will increase.

Diesel margins are also high

The tight situation is not limited to gasoline. European diesel futures reached a record premium of $78.91 per barrel over Brent on Tuesday and remained around $77 on Wednesday.

According to Rystad Energy, margins are also being supported by competition for alternative diesel supplies. European companies have had to seek sources outside Russia after Moscow imposed restrictions on fuel exports, while conflicts in the Middle East are causing further supply disruptions.

Geopolitical tensions are also pushing up the price of crude oil itself. Brent closed at $95.63 per barrel on Wednesday, as fresh attacks between the United States and Iran heightened concerns over further supply disruptions. Transport through the Strait of Hormuz, a key route for global oil trade, remains a particular risk.

The current situation shows that fuel prices are not determined solely by the price of crude oil. If refined product supply remains limited, refinery margins and gasoline and diesel prices may remain elevated even if the rise in crude oil prices comes to a halt.