The ongoing conflict involving Iran, marked by its blockade of the Strait of Hormuz, has created a significant supply shock in global oil markets, disproportionately benefiting US Gulf Coast refiners. The disruption, which began following US and Israeli airstrikes on Iran on February 28, has severely restricted tanker traffic through the critical chokepoint, with volumes recently falling to well below 10% of normal levels.
This has hit Asian and European refiners hard, forcing production cuts and reducing utilization rates to the low-to-mid 80% range. In stark contrast, US refiners, with their limited reliance on Middle Eastern crude and robust export infrastructure, have capitalized. Utilization rates on the Gulf Coast have surged above 95%, compared to a seasonal average of 82%, driving a record surge in US refined product exports in March.
The supply tightness has dramatically boosted refining margins and fuel prices. US ultra-low sulfur diesel futures now trade at a premium of over $72 per barrel over West Texas Intermediate (WTI) crude, up from about $40 before the conflict. Gasoline futures have also widened significantly.
Despite a fragile two-week ceasefire agreement brokered by the US, uncertainty persists. Iran has proposed imposing fees on ships traversing the strait, a move opposed by Western leaders. Furthermore, separate attacks on Saudi Arabian energy facilities have reduced the kingdom's production capacity by approximately 600,000 barrels per day, adding to supply concerns.
While US refiners like Marathon Petroleum, Phillips 66, Valero Energy, and PBF Energy reap windfalls from elevated export prices, they face headwinds from rising feedstock costs. Spot premiums for WTI crude have hit record levels, and Phillips 66 reported nearly $900 million in pre-tax mark-to-market losses in Q1 due to hedging impacts from rising commodity prices. Analysts note the market's focus is shifting to upcoming US inflation data and Federal Reserve policy, which could influence the dollar and commodity prices.
