REFINERY MARGIN TRACKER: Record high global diesel cracks propel margins upward

Rising demand, low inventories and oil market disruption centered around Russia's invasion of Ukraine have pushed diesel cracks to record-high levels, with both US Gulf Coast and Western European cracks breaching the mid $40/b level, according to a March 28 analysis from S&P Global Commodity Insights.

"Strong cracks have pulled up all benchmark refinery margins, which are robust for both HFO- and natural gas-based margins," said Lenny Rodriguez, analyst at S&P Global, noting European diesel cracks rose to an average of $44/b for the week ended March 25.

Atlantic Basin refining margins have doubled over the past week, with NWE refining margins for North Sea Forties crude averaging $15.35/b for the week ended March 25, compared with the $7.09/b the week earlier.

On the US Atlantic Coast, Forties margins adjusted for the Renewable Fuel Standard's renewable volume obligation averaged $13.13/b for the week ended March 25, up from the $6.83/b the week earlier.

Stocks of diesel and gasoil in the Amsterdam-Rotterdam-Antwerp hub in Northwest Europe rose by 2.44% in the week ended March 24 to 1.64 million mt, Insights Global data showed. Stocks fell by 33% from levels in same period in 2021.

Most recent inventory data from the US Energy Information Administration showed USAC diesel stocks at 26.4 million barrels for the week ended March 18, 35% below the five-year average.

Increased refinery downtime tightens supply

Exacerbating the low inventories were a rise in global refinery downtime to 12.38 million b/d for the week ended March 25, reaching 12.71 million b/d for the week ending April 1, according to S&P Global data. This was due to outages in Western Europe and the former Soviet Union amid lower demand from the Russia-Ukraine conflict, the data showed.

US Gulf Coast refineries -- some of which were returning to service after planned maintenance -- were benefiting from increased volatility due to market disruption, which was increasing the pull on exports.

March exports of diesel and gasoil from the USGC averaged 788,000 b/d, up almost 300,000 b/d from February, according to data from commodity tracker Kpler. Most of the barrels were heading to South America or the Caribbean but volumes heading to Europe were averaging 67,000 b/d so far in March, up from the 22,000 b/d exported in February.

Despite higher crude prices, USGC refining margins for Vasconia averaged $35.30/b for the week ended March 25, up from the $30.53/b the week earlier. However, margins drifted lower by end week with March 25's $34.47/b below the day earlier margin of $37.39/b.

Asian cracks seen weaker on Chinese lockdown, steady inventories

Data from refiner Par Pacific, which operates Hawaii's only refinery, showed that the Singapore 3-2-1 crack versus Brent dropped to average $18.58/b between March 12 and March 18, compared with the $30.08/b between March 5 and March 11. However, both were considerably higher than the pre-coronavirus benchmark level of $10.80/b in 2019.

Asian middle distillate inventory levels at the Singapore oil hub were also seen as stable, holding within the 7 million range for the seventh week in a row. Stocks of gasoil, jet fuel, and kerosene were 7.59 million barrels for the week ended March 23, up from the 7.51 million barrels the week earlier, according to Enterprise Singapore data.

While Singapore margins did not reach the levels of Europe or the US, they remained strong with Arab Light margins averaging $10.08/b for the week ended March 25, up from the $4.17/b the week earlier.

Asian demand was seen weakening after Chinese government imposed on Shanghai its most extensive two-stage lockdown since 2020 due to record-high infections of coronavirus in the city.

Lack of buyers for Russian ESPO propelled Asian margins higher. Chinese refining margins for ESPO, which is delivered through a dedicated pipeline, rose sharply $38.07/b for the week ended March 25, up from the $28.92/b the week earlier. Singapore ESPO margins averaged $38.69/b for the week ended March 25, up from the $29.55/b the week earlier.