The drop in crude oil costs over the past months has kept refining product margins stable, such as gasoline and heating oil. As result, the WTI 3:2:1 crack spread remains above its five-year average at $22.56. This measure indicates that the refining process is generating healthy profits currently, despite the overall decline in the energy complex.
This trend is evident in other cracks benchmarks as well, some experiencing an even greater intensity. In this context, Saudi Arabia recently announced discounts to its buyers to maintain market share in a more competitive environment, where sanctioned oil like Urals, from Russia, allows refineries to achieve better margins. In historical terms, post-COVID-19 refining margins have remained exceptionally high.
However, it is important to mention that this current environment may not be sustainable in the future. Recent increases in US inventories signal the potential for a market surplus. Gasoline stocks, already surpassing their five-year average, and are trending upward.
At this moment, refineries are striving to boost the production of middle distillates, which currently offer better profit margins. However, this effort to increase middle distillate production will ultimately long-term inventory growth.
If that weren't enough to bring a more bearish outlook, it is also important to consider the current complicated macroeconomic environment. Higher interest rates, a possible recession in Europe, and lower demand in China may directly impact the energy complex.
