Crack spreads top $60 as refining margins hit records

Crack spreads reached $58.18 per barrel this week and approached $62 by Friday as Strait of Hormuz disruptions and Russian refinery outages slashed global fuel supply.linkedin+1
The Omsk refinery, Russia's largest, halted operations July 7 after a Ukrainian drone strike, deepening a fuel crisis affecting some 50 million Russians, according to Reuters .reuters+1
UBS raised its price target on Marathon Petroleum to $321 on Thursday, citing margin strength, as the refiner's shares surged year-to-date.investing

The gap between what refineries pay for crude oil and what they earn selling gasoline and diesel has blown past all previous records, with the benchmark 3-2-1 crack spread reaching $58.18 per barrel this week and climbing toward $62 by Friday — roughly three to six times what the industry considers a healthy margin. The surge is rewriting the economics of the global energy market and sending refining stocks sharply higher, even as crude oil prices themselves remain well below their wartime peaks.seekingalpha+2

A Refining Boom Fueled by Scarcity

The record margins reflect a collision of forces that have stripped global refined product inventories to dangerously low levels. Disruptions to the Strait of Hormuz, stemming from the U.S.-Iran conflict earlier this year, sharply curtailed Middle Eastern exports of crude and refined products. Simultaneously, Ukraine's intensifying drone campaign against Russian refining infrastructure has removed additional supply. On July 7, Reuters reported that the Omsk refinery — Russia's largest — halted operations after a drone strike damaged a crude distillation unit responsible for roughly 38% of the plant's capacity. The halt deepened a Russian fuel crisis that by July had imposed fuel restrictions on regions home to some 50 million people.reuters+3

With inventories drawn down during the Iran-related disruptions and summer driving season boosting demand, refineries have been unable to rebuild stocks fast enough. The result: gasoline crack spreads reached $58.09 per barrel on July 6, while diesel margins traded even higher. Yahoo Finance reported that the crack spread now represents 70% to 75% of the value of a barrel of crude, up from about 45% at the start of June.finance.yahoo+1

Refiners Cash In

Marathon Petroleum , the largest U.S. independent refiner, has been a direct beneficiary. Its shares surged more than 5% on July 7 and are up 76% year-to-date. UBS raised its price target on the stock to $321 from $280 on Wednesday, citing margin strength. The company was also added to Russell Growth Indexes this week.investing+2

"Watch Gasoline, Not Crude"

On Friday, Jeff Currie of the Carlyle Group appeared on CNBC to urge investors to look beyond headline crude prices. "Watch gasoline and diesel prices, not just crude oil," Currie said, arguing that crude alone does not capture the severity of the supply crunch in refined products. Currie had warned in May that U.S. oil storage tanks would approach "tank bottoms" by the July 4 period — a forecast that has largely materialized as the 3-2-1 crack spread continued setting records into mid-July.bloomberg+2

Goldman Sachs The Goldman Sachs Group, Inc. projected in June that U.S. diesel margins could reach $50 per barrel by the fourth quarter, with global refinery utilization rates approaching record highs by year-end. Those forecasts now look conservative.reuters

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