LONDON: Refiners worldwide have recently gained unanticipated earnings from generating essential fuels, providing relief to a struggling sector before a predicted decline later in the year, as factory shutdowns have restricted fuel availability essential for meeting high summer demand. The robustness in fuel markets is in sharp contrast to crude oil prices, which plummeted to a four-year low in May following OPEC+'s quicker-than-expected easing of output reductions. It also indicates that demand has remained strong despite persistent worries about the effects of tariffs. "Margins remain robust as the equilibrium of products - supply and demand - continues to be constrained," stated Neil Crosby, an analyst at Sparta Commodities. Refining margins indicate the earnings a facility generates from converting crude oil into fuels like gasoline or diesel.
Only a few months back, oil giants were signalling that 2025 would be a tough year for refining. TotalEnergies and BP announced reduced profits for the first quarter due to declining income from fuels. Refiners have generally faced challenges due to declining demand from economic downturns, a rise in electric vehicle adoption, and competition from modern facilities in Asia and Africa. Global composite refining margins hit $8.37 per barrel in May 2025, as reported by consultancy Wood Mackenzie. This marks the highest level since March 2024, yet it remains significantly below the $33.50 average reported in June 2022, during the demand recovery following the pandemic and in response to Russia's invasion of Ukraine. Shutdowns in the U.S. and Europe have curtailed the global increase in refinery capacity, trailing behind demand growth and contributing to greater profitability for functioning refineries.
According to energy consultancy FGE, global diesel supply may fall by 100,000 barrels per day (bpd) year-on-year in 2025, while demand is expected to decrease by 40,000 bpd. Gasoline supply is expected to drop by 180,000 bpd, while demand is projected to increase by 28,000 bpd. "As a result, we are observing a more constrained market for essential transport fuels, which is increasing pressure on margins, much to the satisfaction and delight of local refiners," stated Eugene Lindell, head of refined products at FGE. Refiners across all fuel-producing configurations are reaping the rewards of current margins, FGE's refining chief Qilin Tam noted, as light fuels like gasoline and heavy products such as fuel oil have seen recent increases. In Europe, shutdowns consist of Petroineos' Grangemouth refinery in Scotland and Shell's Wesseling plant this year, along with a partial closure of BP's Gelsenkirchen refinery.
In the U.S., LyondellBasell's refinery in Houston was closed this year, while Phillips 66's Los Angeles refinery and Valero's Benicia refinery are scheduled to shut down in October 2025 and April 2026, respectively. Unexpected refinery shutdowns have further intensified the effects of closures. In April, both Nigeria's massive Dangote refinery and Mexico's Olmeca refinery, two major global refinery projects, experienced unexpected shutdowns in their gasoline-producing units. Fuel stocks at major hubs have decreased this year, generating additional demand for refinery output as the peak summer season approaches. According to JPMorgan analysts, stocks in the OECD area, comprising the U.S., EU, and Singapore, decreased by 50 million barrels during January-May. "The considerable decrease in product inventories has highlighted the strength in product prices," the analysts noted.
In the northern hemisphere, demand for fuel peaks during summer due to the rise in motoring and air travel. In the Middle East, the demand for heavy fuel oil reaches its highest point in summer to satisfy cooling needs as temperatures rise. "Rystad Energy analyst Janiv Shah mentioned that the strength in summer demand growth in the northern hemisphere provides some support to margins." U.S. refining leaders have been optimistic about demand, although they remarked on the low inventory levels. "Our present gasoline supply forecast indicates that these inventories will keep contracting," said Brian Mandell, executive vice president of Phillips 66, during the company's first-quarter earnings call. CEO Maryann Mannen stated during the earnings call that Marathon Petroleum's domestic and export segments were experiencing consistent demand for gasoline, alongside an increase in diesel and jet fuel compared to 2024.
Analysts caution that the present strength might soon diminish as demand suffers from trade wars, and as fuel output increases with plants aiming to capitalise on higher margins. "According to Wood Mackenzie analyst Austin Lin, we believe there is a slight short-term increase." According to the International Energy Agency, global oil demand is projected to increase by an average of 650,000 bpd for the rest of 2025, down from nearly 1 million bpd during the first quarter due to trade uncertainties impacting the global economy. "A seasoned oil trader, who requested anonymity, mentioned that refiners ought to be hedging everything at this point, considering this is likely the best they will get."
FIRST Business Portal addressing the potential of business capability of North East Region.
