OPEC put 3.3 million barrels a day back on the water. Where did the margin go?

The 3:2:1 crack spread is 54.48, up 8.94 over the past 30 days. That number is the rough gross margin a refiner earns turning three barrels of crude into two of gasoline and one of diesel. The question worth an operator's time is what widened it and where the extra margin lands.

Start with the input, because a crack spread is products minus crude and crude is the bigger line. WTI is down 28.4% over the past 30 days, now near its low of 68.58. Brent is down 26.3%. The barrel a refiner buys got about a quarter cheaper in a month. If the fuels made from it had held their price, that drop alone would have opened the spread wide.

The fuels did not hold. They fell too, just slower. ULSD diesel futures are down 15.4%. RBOB gasoline is 2.77, down 11.4%, and 2.77 is also its 30-day low, so wholesale gasoline is at the bottom of its month. Both products dropped. Crude dropped close to twice as fast.

The gap between those rates is the whole move. Crude down 28.4%, diesel down 15.4%, gasoline down 11.4%. When the barrel you buy falls a quarter and the fuel you sell falls a tenth to a sixth, the margin between the two opens up. The 8.94-point gain in the crack is that gap, nothing more exotic.

The wire says the reason crude fell that hard is supply coming back. OPEC output leaped by more than 3 million bpd in June, per Shafaq News. OilPrice, citing Reuters' monthly survey, puts the 11 OPEC members at 19.43 million bpd in June, up 3.3 million bpd from May, as Gulf producers finally brought shut-in barrels back online after the Strait of Hormuz closure. ISNA reports the same thing from the other end, output rising with the reopening of the Strait. More crude reaching the water, priced lower to move it.

The barrels are back but not orderly, which matters for how long this holds. OilPrice notes the cartel is still pumping nowhere near pre-crisis levels, and that May was the lowest reading in that survey since at least 2000. TotalEnergies is offering Iraq's Basrah Medium and Basrah Heavy to Asian buyers at deep discounts, and only on a loading basis, meaning the buyer has to find an empty tanker and send it in through the Strait. So the crude is cheap partly because it is awkward to lift. OilPrice also reports Brent trading in a narrow $71 to $73 band this week as the market grows numb to the U.S.-Iran ceasefire headlines. The crude is cheap and discounted, and the market has stopped reacting to the ceasefire news.

Products fell less than crude for a reason on the supply side too. Refining capacity took hits this month. Lukoil-Nizhegorodnefteorgsintez suspended operations after a July 2 drone attack, per Reuters, and drones halted the refinery at Kstovo. Russia hiked June subsidies to its refiners, per Rigzone, which is what you do when your refining is under strain. Fewer barrels of finished fuel coming out of stressed refineries keeps gasoline and diesel from falling as fast as the crude behind them. Crude cheaper from the front end, products propped from the back end. The spread widens from both directions at once.

So where does the 54.48 land. The crack spread is the refiner's gross margin, and it improved by 8.94 points in a month. This has been a good month for refiners who kept their units running and could buy discounted crude to feed them. They took the risk of operating through a disrupted market and the margin math rewarded it.

The retail side is a different number, and it went the other way. The tracked diesel retail-wholesale spread is 1.336, down 0.375 over the past 30 days. That figure is the marketer and retailer cut on a gallon of diesel, and it narrowed by about 37 cents while the refiner's crack was widening. On diesel, the refiner's slice got fatter and the street-level slice got thinner in the same month.

That last piece does not fully square, and I would rather say so than paper over it. ULSD diesel futures fell 15.4% while U.S. retail diesel, now 4.668, fell 12.7%. Retail fell less than wholesale futures, which by itself should widen a retail-wholesale spread, not shrink it. The tracked spread narrowed anyway, by 0.375. The likely reason is that the retail-wholesale measure uses a rack wholesale price rather than the futures print, and rack did not move in lockstep with the screen. I cannot prove that from the six benchmarks in front of me, so I will not claim it. What I can say is the marketer margin on diesel came down while the refiner margin went up.

What I am sure of is the mechanical answer. The crack widened to 54.48 because crude fell 28.4% while gasoline and diesel fell 11.4% and 15.4%, driven by OPEC's 3.3-million-bpd June return and the Strait reopening, with refinery outages holding products firmer. The margin landed with refiners. What I am not sure of is whether it stays there. Crude is cheap partly because it is discounted and hard to lift, U.S. gasoline retail at 3.964 is down 10.7% and still sliding, and a spread built on crude falling faster than fuel can close as quickly as it opened if either leg turns.

And that was just the data. See you tomorrow.