Refining margins hit record highs, lifting wholesale gasoline and diesel faster than crude

Gasoline and diesel refining margins jumped to new record highs this week. Product coming off the rack is getting more expensive faster than the crude behind it. For a c-store operator, that shows up as a wholesale cost increase you did not get from watching WTI. Anyone setting street price off crude prices alone may already be behind.

The spread

OilPrice.com's Tsvetana Paraskova reports the surge followed the re-escalation in the Middle East and Russia's ban on diesel exports, with global fuel inventories falling at the same time. Crude itself has kept moving. Millions of barrels have left the Strait of Hormuz in recent weeks, and margins climbed anyway.

The tightness is in refined product, and it shows up in the spread over crude. Diesel margins in Europe led the move.

Street margin

The mechanics are ugly for retail in the short run. Rack prices reprice daily and street prices reprice when the sign changes, so a fast run-up in wholesale compresses per-gallon margin for however many days an operator waits to pass it through. Discounters waiting for competitors to move first absorb the most.

Operators running a loyalty discount at the pump should look at what that program costs right now. On a normal week, a five-cent loyalty price is a customer acquisition expense. During a rack spike it can put a site underwater on fuel, and the inside basket has to carry it.

Foodservice

Foodservice is the offset. Pump margin can vanish for a stretch, while a hot case and a coffee program do not reprice with the rack. Operators who lean on fuel gross profit to cover the P&L have less cushion than operators who built inside sales.

Pump prices climbing may also pressure some discretionary inside purchases at the same time margin gets thin. Watch basket size along with gallons.

Diesel exports

Russia's export ban matters to US haulers because it moves European buyers into the Atlantic basin looking for barrels. Gulf Coast diesel that would otherwise stay domestic could get bid away, and that could tighten supply for jobbers hauling to inland terminals.

The IEA has warned that a renewed US-Iran conflict could upend its oil surplus forecast.

What to watch

Watch whether refined product inventories stabilize and how long the diesel export ban holds. If Gulf Coast diesel starts pricing for export, some jobber supply contracts could get expensive to serve.