Despite U.S. refinery margins having fallen since the middle of 2022, they remain at historically high levels, resulting in substantial profits from oil product production. The reasons for this strong result are the persistent demand amidst lower-than-average inventories of gasoline and diesel. Additionally, the increase in demand has outpaced the net supply additions, resulting in market tightness.
Meanwhile, the demand for middle distillates remains strong in various regions around the world. Recently, the Executive Vice President of Marketing at Phillips 66, a major American refinery, mentioned a 9% growth in demand in Latin America and 4% in Asia, further bolstering optimism regarding the excellent margins expected for the remainder of 2023. Profits from processing a barrel of crude oil at refineries have seen substantial gains, as indicated in chart 4. Despite crack spreads encouraging high refining utilization, inventory levels have not shown significant signs of buildup thus far.
Furthermore, additional factors are contributing to the upward momentum in refined product prices. For instance, a fire incident at the Garyville refinery has led to a halt in production on 25th of August. The facility is responsible for generating approximately 265 thousand barrels per day (bpd) of gasoline, which accounts for roughly 3% of the entire U.S. consumption. Moreover, the intense heat had affected the U.S. refining hub along the Gulf Coast resulting in outages.
The current trend shows middle distillates outperforming gasoline, taking the lead as primary margin drivers. Looking ahead, margins in the fourth quarter might experience a dip from their current levels. This forecast can be attributed to the expected decline in gasoline margins as refineries shift towards manufacturing more economically viable winter-grade fuels, including heating oil. However, future prices may remain favorable for refineries when compared to historical levels.
