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FINWIRES

Refining Margins Stay Muted Despite Renewed US-Iran Conflict, TPH Says

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Global oil refining margins showed only modest moves even as crude prices surged after renewed fighting between the US and Iran, suggesting traders remain unconvinced that the escalation in the Middle East will lead to a prolonged supply disruption, TPH Energy Research said in a Wednesday note.

Matthew Blair, analyst at TPH Energy, said Brent crude climbed about 6% after reports that the US struck over 80 targets in Iran following Tehran's alleged attack on three vessels in the Strait of Hormuz.

President Trump also declared the ceasefire with Iran over, raising concerns over renewed instability in one of the world's most important energy corridors.

However, TPH said that product cracks, the profit refiners earn by turning crude into fuels, have remained relatively subdued.

The US ultra-low sulfur diesel crack spread against Brent crude rose by about $1 per barrel to $66/bbl, its highest level since late June.

The gasoline crack spread fell by about $2/bbl to $48/bbl, indicating weaker relative demand or expectations for increased gasoline supply.

TPH said a similar pattern emerged in Asia, where Singapore diesel cracks rose about $1/bbl to $42/bbl, while gasoline cracks declined about $2/bbl to $21/bbl.

The muted response contrasts with the sharp rally in crude prices and suggests fuel markets are not yet pricing in a sustained disruption to refining balances or product supply.

Blair said that if the peace deal is truly scuttled, cracks are expected to widen.

Singapore diesel cracks averaged about $60/bbl in Q2, while gasoline margins averaged about $25/bbl.

TPH said that at the height of earlier tensions in the Middle East, both products briefly traded at about twice those average levels as fears over disruptions to crude and refined product flows intensified.

The bank said the relatively restrained reaction in refining margins indicates traders are waiting for clearer evidence that renewed hostilities will disrupt crude production, refinery operations, or shipping via the Hormuz.

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