Why has the 3:2:1 crack spread widened to $57.26 a barrel over the past month?

The 3:2:1 crack spread is $57.26, up $9.08 over the past month. Crude fell over that same stretch. The question is whether refining margins improved because products held their value or because crude fell out from under them, and the answer matters for anyone buying fuel this quarter.

Crude

WTI is down 13.2% over 30 days. Brent is down 10.2%. Both benchmarks fell hard over the month, and both are sitting well below where they traded at the start of it. The input side of the barrel got a lot cheaper.

Products

Products fell too. Gasoline is $3.911, down 8.6%. Diesel is $4.578, down 12.1%. Neither is a small move, and neither held up while crude sank. They went down with crude.

The percentages are what matter. WTI fell 13.2% and gasoline fell 8.6%, so crude gave back a larger share of its value than gasoline did. The 3:2:1 is two parts gasoline and one part distillate against three parts crude, so gasoline carries the weight. Diesel's 12.1% decline is close to crude's, so distillate is adding little to the spread on its own. The spread widened because crude fell faster than gasoline did. That is a crude story. It looks like a demand story, and it isn't one.

The refiner buying crude today is paying meaningfully less than the refiner who bought a month ago, and is selling gasoline at $3.911 into a market that has not repriced as fast.

Then the wire complicates it. Brent futures surged 4% to top $79 per barrel in Asian trading after U.S. strikes on Iran over the weekend, with WTI up 4.13% to $74.36 a barrel. So the last crude move I can see is up, and it is a big one. The 30-day trend is down. The most recent print goes the other way.

If crude climbs and gasoline doesn't follow, the spread compresses back toward where it started. A crude rally would compress the $57.26, and it may already be in motion. The supply picture isn't one-sided, though. Nigeria pumped 1.56 million barrels per day of crude in June, a six-year high and the largest average monthly production volume since April 2020, according to the Nigerian Upstream Petroleum Regulatory Commission. Barrels are coming from somewhere even while supply risk gets priced.

On the refining side, key units at the Syzran Oil Refinery have been damaged, per satellite photos, and Germany's Schwedt refinery is taking South American oil via Poland. Damaged capacity abroad would support product cracks by tightening supply of finished fuel. I can't tell from what I have whether that is contributing to the $57.26 or whether the spread is entirely a crude-decline artifact.

Where the margin landed

The refiner is capturing it. The 3:2:1 is a refining margin by construction, and it went up $9.08. Downstream, the diesel retail-wholesale spread is $1.28, down $0.33 over 30 days. Retailers are earning a third of a dollar less per gallon on diesel than they were a month ago, while the refining margin improved. The extra margin sits with refiners, not retailers. Retailers who pre-bought inventory at higher wholesale are working through it at lower street prices, which is what a $0.33 compression in that spread looks like from behind the counter.

What to watch

Do not pre-buy diesel inventory against a $57.26 crack that is built on falling crude. The spread widened because crude dropped, and crude jumped 4% on the last print I have. If supply risk keeps bidding the barrel up and gasoline stays near $3.911, the $57.26 can compress fast. If Nigerian barrels and whatever else is flowing keep crude soft, refiners may hold this margin a while longer. I would not book the second quarter on it.

And that was just the data. See you tomorrow.