Churning oil has never been so profitable for US refiners

High fuel prices are not bad news for everyone. Just look at U.S. refiners.

The 3-2-1 futures crack spread—a measure of the profitability of turning crude into gasoline and diesel—shot up to as much as $44.406 on Wednesday, the highest level in records going back to 1986, exceeding the one-day blip in April 2020 when West Texas Intermediate futures briefly dipped below zero.

Record margins underscore the high prices American and overseas buyers are willing to pay to keep driving, trucking and operating machinery while cutting their reliance on Russian fuel. Still, U.S. refiners may not be able to satisfy demand, which may spell more pain at the pump in coming months.

Signs that high fuel prices may have deterred some drivers in March have now evaporated with implied U.S. gasoline demand reverting to the seasonal rising norm, pushing inventories below the five-year average for this time of year. Meanwhile, diesel exports from the Gulf Coast are on track to reach their highest level since at least 2016, sinking domestic stockpiles to their lowest since 2008. The distillates shortage is most acute on the East Coast, where inventories have tumbled to their lowest level since 1996.

U.S. gasoline and diesel demand are expected to exceed 2021 levels this summer by 1% and 2% respectively, despite pump prices for both increasing to their highest levels since 2014 after adjusting for inflation, according to a government forecast. Exports will likely remain strong as buyers in Latin America and Europe continue to seek alternatives to Russian products.

Fuelmakers on the U.S. Gulf Coast have been operating above 94% of capacity since returning from maintenance in early March, the highest levels for this time of year in government data going back to 2011.