– Global refining profit margins above 2024 levels
– Traders refilling depleted diesel inventories after cold winter
– Gasoline demand set to rise ahead of summer
London — Global oil refineries’ strong profit margins signal healthy oil consumption today, a stark contrast with the grim long-term demand outlook.
Sentiment in the oil market has soured in recent weeks due to concerns about the impact that U.S. President Donald Trump’s trade war will have on global economic activity and energy consumption.
The International Energy Agency last month sharply slashed its oil demand forecast for 2025 to 730,000 barrels per day from 1.03 million bpd in March, citing trade tensions.
At the same time, the surprise plan by OPEC+ to sharply increase crude production by 960,000 bpd between April and June has increased bearishness about long-term oversupply.
But looking at current conditions on the ground, one would be forgiven for thinking that the oil market is doing extremely well.
Refining margins, which reflect the overall profits a plant makes from processing crude into fuels such as gasoline and diesel, remain elevated. The Singapore margin for refining Dubai crude is around $7 a barrel, compared with $4.25 a year ago, according to data provider LSEG.
Similarly, benchmark European Arab light margins are at $6 a barrel, some 36% higher than the price one year ago, while U.S. Gulf Coast Mars margins have more than doubled over the same period to near $16 a barrel.
These margins are obviously being flattered by the steep decline in oil prices this year, and they are lower than the peaks seen during the height of the energy crisis that followed Russia’s invasion of Ukraine in 2022. But they remain high compared to recent history and certainly do not reflect a contraction in demand.
Importantly, U.S. refineries are operating at elevated levels, processing over 16 million bpd last week, 123,000 bpd higher than last year.
Yet Brent crude forward prices indicate that investors don’t think demand will hold up.
While the Brent July contract is trading at a premium to the October contract, indicating a healthy supply and demand balance, prices in the fourth quarter of 2025 onwards have in recent weeks shifted to a contango structure, whereby future prices trade above contracts for earlier delivery. This means investors expect to see an oversupply in oil relative to demand.
WHAT GIVES?
What explains this discrepancy between ample refining margins and the dour demand outlook?
One key factor is clearly that oil refineries, traders and wholesale buyers are filling up gasoline stocks ahead of the peak summer driving season and refilling depleted diesel stocks following a particularly cold winter.
And even though consumer and business confidence may be falling and anxiety about an impending economic slowdown may be spiking, oil demand is continuing to hold up well.
While U.S. diesel and heating oil stocks are significantly below their 5-year average at around 107 million barrels, consumption of around 3.7 million bpd on a 4-week average basis remains above the 5-year average despite declining by 13.5% from this year’s high, according to the latest data from the Energy Information Administration.
U.S. gasoline demand and inventories also remain near last year’s levels, while commercial crude inventories are around 438 million barrels, shy of last year’s level, according to the EIA.
Similarly, European diesel stocks are below their 2024 levels, according to Dutch consultancy Insights Global, while demand continues to be fairly healthy.
PARTY ALMOST OVER?
All this points in one direction: stronger refining margins.
But it is unclear how long this will last.
In addition to plentiful forecast downgrades, there are some signs that real, on-the-ground economic conditions are eroding. Container bookings between China and the United States – a key metric for trade conditions between the world’s top economies – dropped by 42.7% on a weekly basis in the seven days to April 28, according to analytics firm Vizion. Many retail companies have also cut sales targets in recent weeks.
Of course, successful trade talks between Washington and Beijing over the coming weekend – and other signs of de-escalation in the global trade war – could alter the outlook for global economic activity meaningfully.
But, for now, oil refiners are enjoying a surprisingly buoyant market.
*Ron Bousso; editing: Sonali Paul – Reuters
