US refineries run at an eight-year high as the Iran conflict lifts crude and rack costs
Refinery utilization hit an eight-year high last week while product cracks stayed strong, according to the EIA's latest Weekly Petroleum Status Report. For jobbers, that is the number that matters right now: the refineries pulling your barrels are running hard and making good money on every gallon they crack, which keeps product moving off the racks even as crude climbs underneath it.
That same strength is draining crude, though. RBN's read of the report shows strong refinery demand and heavy product exports pulling US crude balances down fast, even with imports rising. If that keeps up, the spot crude that feeds your suppliers gets pricier before the barrels ever reach a terminal.
The Iran premium
The conflict involving Iran is pushing crude and refined product costs higher worldwide, and that is landing at the rack. Puerto Rico is the clean example of what a price-taker feels. Gasoline and diesel there rose sharply this week, and Luis Guiets, president of the Puerto Rico Gasoline Retailers Association, said petroleum costs have been climbing steadily because of the conflict, with the impact now showing at the pump.
Puerto Rico matters to a mainland jobber as a preview, not a market. The island buys on the water with no domestic refining buffer, so it takes the full international shock first. Unbranded and spot buyers on the Gulf and East Coasts sit closer to that exposure than branded accounts with supply contracts. If the geopolitical premium holds, expect it in your unbranded rack quotes before your branded ones.
Europe's gas scramble
Europe is heading into winter with its lowest natural gas in storage in nearly two decades, setting up a fight with Asia for a shrinking pool of LNG while Middle East cargoes stay blocked at the Strait of Hormuz. "The potential for a global 'fight for fuel' is there, particularly in a colder winter," Kpler LNG analyst Go Katayama told Bloomberg.
This is a gas story, not a gasoline one, so keep it in proportion. It matters to a US operator because strong overseas demand keeps US LNG export terminals running full and keeps global energy costs firm, which does not help crude ease. A cold snap in Europe could pull more US cargoes out and keep the whole complex bid up.
What to watch
Watch the next WPSR crude draw. Runs at an eight-year high with exports this strong can tighten balances quickly, and that shows up in your replacement cost before it shows up in the news. Watch whether the Iran premium sticks or fades if the fighting cools. On the rack, unbranded moves first.