Why did the 3:2:1 crack spread widen to 57.96 this month?
The 3:2:1 crack spread is 57.96, up 11.98 over the past thirty days. A move that size normally means refiners are getting paid more for gasoline and diesel than they were a month ago. Neither product is up.
Diesel is 4.578, down 12.1% over thirty days. Gasoline is 3.911, down 8.6%. Both fell, and the spread between crude and products still widened by 11.98. The obvious read is that products got pricier and refiners caught the difference. The product prices say that did not happen.
Why crude fell
WTI is 19.0% lower than it was thirty days ago. Brent is 17.3% lower. Crude fell roughly twice as fast as gasoline and about half again as fast as diesel. The crack widened on the way down, because the input fell faster than the output. A refiner buying crude today and selling gasoline and diesel today is paying much less for the barrel and giving back only some of it at the rack.
Two things show up in the reporting. The first is supply that is not going anywhere. EIA data has U.S. crude production, including lease condensate, averaging a record 13.6 million barrels per day last year, keeping the United States the world's largest crude producer for the eighth straight year since it passed Russia in 2018. Julianne Geiger at OilPrice.com made the point that the record was set while prices were falling, which is the part that matters for a refiner buying feedstock. Supply that holds through a price decline can keep pressure on the price.
The second is risk premium coming out of the price. Indonesia took its first cargo of Russian crude at the end of June under a supply deal, about 770,000 barrels into Balikpapan, per customs data cited by Bloomberg. The deal was struck in April, described in the reporting as the peak of the Hormuz crisis. Indonesia is taking delivery now on a deal signed when Hormuz risk was priced in. When the crisis premium leaves a crude price, the crude price falls and the product prices follow more slowly, because product prices are set closer to the pump and move at the speed of racks and retail contracts. While the products catch up, the crack spread widens.
I checked natural gas storage, on the theory that cheaper refinery energy might be padding the margin. Storage is 2983.0, up 11.1% over thirty days, and it does not enter the 3:2:1, which is a crude-and-products calculation that leaves utilities out.
What the paper spread actually pays
The 3:2:1 is a paper spread. It takes today's crude price and today's product prices and subtracts. A real refinery does not work that way. The crude in the unit right now was bought and shipped weeks ago, when crude was well above where it sits today. The gasoline coming off the other end sells at today's 3.911. During a fast crude decline the posted crack overstates what a refiner actually banks, sometimes by a lot, because the inventory was purchased before the fall. So 57.96 is the ceiling on this month's refining margin. The number that reaches the income statement is smaller. Refiners who hedged their crude purchases will realize more of it than refiners who did not. That is a real business decision, made months ago.
What the diesel street did
The retail data cuts against the easy version too. The diesel retail-wholesale spread is 1.28, down 0.33 over thirty days. On a falling wholesale market the usual pattern is the opposite: street prices lag the rack down, and the retailer's margin widens for a few weeks. It narrowed instead, by 0.33, in the same month the refining crack widened by 11.98. Diesel retailers passed the wholesale drop through to customers faster than they normally do, and they took less per gallon while doing it.
Fleet buyers negotiate against the wholesale print, so diesel retail may have less room to hold price. Or wholesale fell so fast that retail overshot chasing it down. The data does not say which.
What to watch
Crude around 68.25. If it holds there and products keep grinding down, the crack compresses from both ends. If it slides again, the posted crack stays wide and what refiners actually bank keeps lagging it.
The diesel retail-wholesale spread at 1.28. Another leg down means street margin is still giving ground. A rebound means the fast pass-through has run its course and retailers are rebuilding the cushion.
What I am sure of: crude fell faster than gasoline and diesel did, and the cheaper barrel opened the gap. The refining step is where the wider margin shows up on paper, and refiners with well-timed crude purchases may keep a good share of it.
What I am not sure of: how much of 57.96 anyone actually realizes, and why the diesel street gave back 0.33 while the refinery gate gained.
And that was just the data. See you tomorrow.