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Refiners capture historic margins on crack spread
The bull case for refiners is driven by a historic divergence where crude oil prices fall rapidly while finished fuel prices remain elevated due to severe refining bottlenecks.
The argument
The speaker argued that the 3-2-1 crack spread has reached a record high of over $60 per barrel. This timing mismatch occurs because crude supply has normalized quickly post-ceasefire, whereas refining capacity, local environmental blending requirements, and depleted product inventories cannot recover as fast.
The thesis, stress-tested
✓ What validates it
- ✓Crack spreads remaining at or above $60 per barrel in upcoming quarters
- ✓US distillate inventories remaining more than 12% below their five-year seasonal average
▸ Risks discussed
- ▸High utilization rates increase the risk of unexpected refinery equipment failures
- ▸A severe global economic downturn could crush fuel demand and collapse the spread
- ▸Increased global production and cargo redirection will eventually rebuild inventories and compress margins
Hear it yourself
"that paid for crude, and the gross difference is a $126 across three barrels. Divided by three, the three two one crack spread in our hypothetical example is $42 per barrel. Again, that's not $42 of net profit. It's the standardized futures market proxy for the gross refining margin before operating costs and other expenses. And at today's spread of more than $60, the implied gross difference across"
05:44 · 05:44