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US Refiners Reap Windfall as Hormuz Disruptions Boost Exports, Q2 Margins, EIA Says

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The disruptions to oil and fuel shipments through the Strait of Hormuz in Q2 drove sharp swings in crude prices while boosting US refinery margins, fuel exports and refinery utilization, US Energy Information Administration strategists said in a note on Wednesday.

The EIA analysts said the disruptions, triggered by the Middle East conflict, curtailed international crude and petroleum product flows through the Hormuz for much of the quarter, forcing buyers to seek alternative supplies and increasing demand for refined products.

The analysts said Brent crude futures traded in an unusually wide range during the quarter, climbing to as high as $118 per barrel on April 29 before plunging to $72/bbl on June 26.

Crude prices began the quarter above $100/bbl as reduced crude flows via the Strait and production shut-ins across the Middle East tightened global supplies. Market uncertainty over when shipping would resume kept prices highly volatile through April and May.

The EIA said Brent prices fluctuated by an average of $4/bbl each day during those two months, compared with average daily moves of about $1/bbl each day during the same period a year earlier.

Crude prices eased from mid-May as ceasefire negotiations and expectations that shipping through the Strait of Hormuz would resume improved market sentiment.

The US-Iran interim peace agreement, signed on June 17, aimed in part at restoring maritime traffic through the strategic waterway, accelerated the decline as tanker movements increased.

However, despite the sharp fall in prices during the second half of the quarter, global crude inventories continued to tighten.

The EIA estimated global crude oil inventories declined by an average of 5.1 million barrels per day during the quarter.

US commercial crude inventories also fell steadily, the agency said, ending the quarter at their lowest seasonal level since 2014 as record crude exports and robust refinery runs drew down stockpiles.

US refiners processed the most crude oil in Q2 since 2019 despite refining capacity being about 4% lower than it was then, reflecting strong demand for transportation fuels.

Refining margins strengthened significantly, with the average gasoline crack spread rising 60% from a year earlier, while distillate and jet fuel crack spreads more than doubled amid tighter international fuel markets.

The EIA's stronger economics encouraged refiners to maximize production of export-oriented fuels.

The agency said that US distillate exports averaged a record 1.56 million b/d during the quarter, about 30% above the five-year average.

Jet fuel exports averaged 356,000 b/d, more than double the five-year average, supported by strong demand from Europe and other overseas markets.

Refiners also adjusted their product mix to capitalize on higher jet fuel margins. Jet fuel production averaged 24% above the five-year average during the quarter, while distillate production rose 5%.

Motor gasoline production increased by just 1%, reflecting a shift in refinery yields toward products in strongest international demand.

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