Analysis: Cracks Soar as Crude and Product Prices Diverge


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- Crude oil prices have softened throughout the year amid 
record high non-OPEC production and OPEC ramping up output since April. Since 
January 15, when WTI closed at its highest so far this year at $80.04 bbl, 
front-month WTI futures have fallen by more than 26%. Oil product prices, on 
the other hand, have held up much better. Front-month RBOB futures were down 9% 
in that same time span, and ULSD futures softened by only 5.6%.

   Refining margins have consequently risen sharply this year, with the 3:2:1 
crack spread vs. WTI climbing to its highest since March 2024. In the same time 
span in which crude oil futures lost more than a quarter in value, the 3:2:1 
crack spread vs. WTI rose from $17 bbl to $30.69 bbl, an 80.5% increase. Tight 
product inventories, particularly of middle distillates, unplanned refinery 
outages and attacks on Russian downstream infrastructure boosted U.S., European 
and Asian refinery margins, with the latter two reaching two-year highs in 
October.

   Under normal market conditions, crack spreads tend to move in unison with 
crude oil prices, as product prices are heavily influenced by oil prices. In 
the last ten months, however, they have been increasingly diverging, driven by 
strength in middle distillates and heavier products, as well as by rapidly 
growing crude oil supply.

   The absence of Russian diesel was felt in Asian and European middle 
distillate inventories, which remained tight by historical standards. In the 
U.S., a cold winter in the Northeast and higher shipping demand ahead of 
large-scale tariff implementation drove middle distillate demand higher and 
kept inventories low.

   At the same time, global crude oil production growth dwarfed the growth in 
refinery runs. The International Energy Agency in its latest monthly oil market 
report pegged global production in October at 6.2 million bpd higher than in 
January. A substantial portion of the additional supply, however, landed in 
inventories amid low refinery runs and China's ballooning strategic crude oil 
reserves. Global runs grew by less than 1 million bpd year-on-year.

   The crude-product divergence escalated in the third quarter. Global refinery 
throughput slumped in October, down 2.9 million bpd year-on-year amid unusually 
high seasonal turnarounds and unplanned outages, while global crude supply fell 
440,000 bpd year-on-year. Product prices have consequently increased sharply 
since mid-October. Front-month ULSD futures are up more than 18% from their 
trough on October 17, and RBOB futures rose more than 9%.

   As the rise in crude oil prices was much less pronounced, crack spreads have 
surged in the last six weeks. The 3:2:1 crack spread vs. WTI jumped from $21.4 
bbl in early October to over $31 bbl, driven by pronounced strength in U.S. 
middle distillate cracks, which have over the past four weeks increased by more 
than 40%.

    




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