Refined Fuels Drive Oil Market Crunch Despite Crude Price Drop

Refined fuels, not crude oil, are driving the current market crunch. Crude oil prices have recently come off a fresh two-month high due to de-escalation in the U.S.-Iran conflict, but refined product markets remain tight.

Despite record-high refining margins, which held even as crude oil prices soared to $100 per barrel last week, global fuel inventories are at multi-year lows. The supply of petroleum products is tighter than crude supply, causing a significant spread between refined product and crude oil prices.

In Europe, diesel refining margins jumped to a record high of over $60 per barrel after Russia announced a ban on diesel exports due to Ukraine's drone attacks on Russian refineries. Gasoline in Europe traded at a four-year high premium to crude of $41 per barrel.

Tighter availability amid export bans and low fuel inventories in many countries, including the United States, pushed higher refining margins and fuel spreads over crude. U.S. commercial oil stocks remain 6% below the five-year average for this time of year, while stocks at Cushing, Oklahoma, and in the Strategic Petroleum Reserve (SPR) are at multi-year and four-decade lows, respectively.