US Refiners Q1 Profits Surge on Hormuz Closure: $30/b Diesel Crack
Leading US refiners are expected to report first-quarter profits jumping 25-35% as the closure of the Strait of Hormuz drives diesel and jet fuel margins to unprecedented levels, with Singapore refining margins surging to nearly $30 per barrel.
What Happened
The catalyst is the U.S.-Iran conflict escalation that commenced February 28, resulting in the effective closure of the Strait of Hormuz—a corridor managing over 20% of global daily oil supply. This disruption has forced refineries in Asia and Europe to reduce operations while diesel cracks pushed above $30 a barrel, surpassing peaks seen at the start of the Russia-Ukraine war. In Asia, Singapore's refining margins specifically surged to nearly $30 per barrel, while aviation fuel margins exceeded $52 per barrel, reaching a six-year high.
China and Thailand have already halted refined fuel exports to protect regional supply, tightening the market further. The margin increase is primarily driven by robust demand for middle distillates like diesel and jet fuel, alongside severe feedstock shortages as Middle Eastern crude remains stuck at the Hormuz chokepoint.
Analyst Take
Analysts predict that robust fuel margins will enhance refiner earnings for several upcoming quarters, not just Q1. Leading independent refiners including Phillips 66 ($PSX), Valero ($VLO), and Marathon Petroleum ($MPC) are anticipated to report significantly increased profits compared to the previous year. The Street views the margin surge as a structural shift rather than a temporary spike, given the ongoing geopolitical tension and the lack of immediate alternative crude sourcing options for Asian and European refineries.
June Goh, an oil market analyst at Sp Commodities, noted the looming shortage of feedstocks due to reliance on Middle Eastern crude, stating that most product cracks are now at multi-year highs. This suggests sustained earnings pressure on the upside for the downstream sector.
What to Watch
Investors should monitor the upcoming first-quarter earnings reports for Phillips 66, Valero, and Marathon Petroleum, which are expected to confirm the profit jump. Key levels to watch include the sustained $30 per barrel diesel crack and whether the $52 per barrel aviation fuel margin holds as demand remains strong. Additionally, any further export halts from China or Thailand, or new geopolitical developments regarding the Hormuz blockade, will be critical catalysts for the next price move in refiner stocks.
Traders should also watch for potential volatility in crude oil futures as the supply disruption continues, which could impact input costs for refineries despite the high output margins.