Oil Refining Boom Fueled by War, But Won't Last

Iran's war has triggered a refining boom that won't last long. Big Oil is enjoying bumper profits due to a shortage of refined products and high demand, but this windfall is fueled by temporary disruptions in global energy supply chains.

The conflict in Ukraine and the Iran war have sharply reduced Russia's and Middle Eastern refineries' output, while the effective closure of the Strait of Hormuz has limited refiners' access to crude oil. This has sent refining margins for gasoline, diesel, and jet fuel skyrocketing to record highs.

BP's refining-indicator margin has climbed to $30 per barrel in the second quarter from $17 in the first quarter and $12 a year earlier, according to Reuters Open Interest calculations. Exxon posted downstream profits of $5.5 billion in the second quarter, its strongest result since 2022, driven by record diesel production.

However, long-term structural changes in oil consumption mean refining's star will likely fade quickly. The sector's problems cannot be repaired immediately, and global spare refining capacity remains exceptionally thin.