Analysis: Refining Margins Soar as Markets Diverge in July


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- U.S. refiners have over the past few weeks operated at 
near-maximum capacity, resulting in the fastest U.S. crude processing pace in 
seven years and record high diesel production. Some product cracks soared to 
new all-time highs, propelled by a growing divergence between fuels and crude 
oil balances.

    

   U.S. Refiners Test Limits

   U.S. refiners have during the ongoing Hormuz crisis become a swing supplier 
of refined fuels to the global market. Gasoline, diesel and jet fuel exports 
have over the past months set new record highs. High margins had domestic 
refiners operate far above typical seasonal levels, an effect that intensified 
in July with the jump in crack spreads and seasonally rising domestic demand. 
Consequently, crude throughput set a new post-pandemic high despite 
considerably less available refining capacity. Over the past four weeks, U.S. 
refiners utilized 96.3% of operable capacity, compared to 94.9% in the same 
period in 2025. Net crude oil inputs averaged 17.14 million bpd, up 212,000 bpd 
year-on-year, despite a 110,000 bpd drop in capacity. Refiners also continued 
to optimize operations toward maximizing yields of the most profitable parts of 
the barrel, leading diesel output in July to top year-ago levels by 200,000 bpd 
and the five-year seasonal average by nearly 300,000 bpd.

   Sustained operations near maximum capacity and maintenance deferments 
greatly increase outage risks. What's more, the lack of spare fuels production 
capacity means that any supply disruption will be hard to replace. These 
factors served as yet another catalyst for the surge in refined product prices, 
with consequently rising margins ironically incentivizing refiners to continue 
to run their units as hard as possible.

    

   A Tale of Two Markets

   In July, oil prices clawed back much of last month's losses amid mounting 
oil supply disruptions and a reheating U.S.-Iran war. While the crude market 
experienced some temporary respite from an uptick in oil flows through Strait 
of Hormuz, global fuels supply remained tight.

   Fuel and crude oil demand have both suffered from the ongoing Middle East 
supply disruption, but to unequal degrees and for different reasons. Export 
bans across Asia, and a dip in global fuels demand caused by the price spikes 
led to softening crude demand. However, the main driver of crude demand 
destruction was the supply disruption itself. Refiners in Asia were forced to 
slash runs by millions of bpd amid the sudden loss of their primary crude oil 
source. The latter effect was absent on the fuels side, leading to a much 
steeper demand drop for crude than for fuels. Much of the oil consuming world 
approaching main travel season added to the demand divergence.

   On the supply side, in contrast, crude oil and refined products moved in 
parallel. In addition, the world was able to partially feather the crude 
shortage by drawing on well-stocked inventories, an option which was much more 
limited with refined products. Finally, the brief reopening of the Strait of 
Hormuz last month led to a sudden wave of crude oil inundating the market, as 
hundreds of laden tankers which have been stranded for months were able to 
leave. All these factors combined led to a growing dissonance between crude oil 
and fuels balances and by extension prices.

   Mounting war-induced refinery outages from the Middle East to Russia have in 
July added to the fuels supply tightness, catapulting product cracks, which 
have been on a steady rise since the start of the supply disruption in early 
March, to new heights. The 3:2:1 crack spread vs WTI rocketed past the 2022 
Ukraine invasion record, peaking at $72.22 bbl.

    

    

Monthly Futures Recap                           July* 2026
                                                *7/31 not included
                 Brent ($/bbl)    WTI ($/bbl)   ULSD ($/gal)    RBOB ($/gal)
Close July 30    89.03            83.59         4.2094          3.2847
Open July 1      73.4             69.98         3.2251          2.9091
m/m              15.63            13.61         0.9843          0.3756
m/m (%)          21.3%            19.4%         30.5%           12.9%

    




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