The road to higher refining margins

In recent months, gasoline crack spreads in the US, especially on the US East Coast have hit several year highs. Crack spreads reflect the difference between wholesale product prices and crude oil prices, and are a good indicator of refiner profitability. As an example, in April this year, wholesale conventional gasoline in New York Harbour averaged US$1.79/gal., and the Brent crude oil spot price averaged US$1.41/gal. The difference in price results in a crack spread of 38 cents/gal., the highest crack spread for the month of April since 2007.

Strength in gasoline crack spreads can also be seen in regions beyond the US. When it comes to the European gasoline market, the Northwest Europe gasoline/Brent crack spread averaged 35 cents/gal/ in April, the highest since April 2010. In Asia, the Singapore gasoline Dubai/Oman crack spread averaged 39 cents/gal. in April, similar to levels last year and 3 cents/gal. below the recent high in April 2012.

As gasoline specifications, refinery maintenance schedules, and seasonal demand patterns are not uniform across the world and can influence gasoline crack spreads at different times of the year even within a region, comparing crack spreads on a year over year basis allows for a better understanding of the strength of gasoline prices in a given region.

The main factors

The main factors contributing to the global increase in gasoline crack spreads in 2015 are the lowest crude oil prices in several years, robust US gasoline consumption and exports, and higher than expected demand for liquid fuels in Europe and some countries outside OECD.

Refiners in many regions of the world have been processing larger volumes of crude oil to take advantage of these higher gasoline crack spreads. On the US East Coast, average gross inputs to refineries in April were the most for that month of the year since 2010. Refineries in Europe, were, for years, the refining sector and how profitability, now have increased refining utilisation rates amid improving margins.

Although April gasoline crack spreads in Asia did not exceed recent record highs, Asian refineries have been processing more crude oil compared to the same time last year as margins from gasoline and other petroleum products in that region have remained strong since the first quarter of this year.

Edited from press release by Claira Lloyd

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