3-2-1 crack spread

Record runs allowed U.S. refiners to continue a multiyear streak of strong margins in 2018 despite higher crude prices during the first three quarters and a weaker fourth quarter after product prices tanked along with crude in October. While rising crude prices threatened refinery margins, a high Brent premium over domestic benchmark West Texas Intermediate (WTI) kept feedstock prices for U.S. refiners lower than their international rivals. The availability of discounted Canadian crude also helped produce stellar returns for Midwest, Rockies and Gulf Coast refiners that are configured to process heavy crude. Product prices only weakened in the fourth quarter when gasoline inventories began to rise. Today, we highlight major trends in the U.S. refining sector during 2018 and look forward to 2019.

Average margins for a Gulf Coast condensate splitter have been about $5/Bbl better in 2015 than they were in 2014 but are still about $4.75/Bbl worse than an equivalent Gulf Coast 3-2-1 crack spread. The economics of condensate splitters have also yet to be tested in an environment if – as could happen later this year – crude production begins to decline. Are condensate splitters a better investment than just exporting lightly processed condensate under relaxed export regulations? Two companies considering projects seem to have reached different conclusions recently. Today we continue our update on splitter projects with a look at economics.

Since the start of the shale oil boom in 2011 crack spread margins for Midwest refiners have averaged about $23/Bbl. Once written off refineries on the East Coast have averaged $16/Bbl this year so far (2015) and California refiners are currently enjoying average $24/Bbl crack spreads. Refinery utilization at the Gulf Coast has averaged close to 90% for the past 4 years and 92% in the Midwest. Today we review buoyant margins and operating levels at U.S. refineries.

West Texas Intermediate (WTI) crude prices reached $110.53/Bbl last Friday, their highest daily settlement since May 2011 - in response to expectations of a US military attack on Syria. The sudden prospect of a Russian brokered peaceful solution to the Syrian chemical weapons crisis prompted a $3/Bbl fall in WTI prices since then. These wild price gyrations in response to events far away continue to impact US crude markets so long as we are major importers.  Today we look at how the Syria crisis affects the US oil market.

Last week (August 7, 2013) the 3-2-1 crack spread based on NYMEX CME crude and refined product prices that is seen as a proxy for the performance of US refinery margins, reached a two year low. The 3-2-1 crack has fallen 56 percent this year from its high in March. At the same time refineries are still processing crude like there’s no tomorrow – at over 90 percent of capacity. Can the party continue? Today we peak through the cracks to uncover what’s going on.

Refiners ultimately determine crude price values. Refining margins vary by location, crude quality, product prices and refinery configuration. Today we return to the Bakken to conclude our series: The Bakken Buck Starts Here – Bakken Crude Pricing Part IV - to discover that a longer journey to market might just be the most profitable.