In George Miller’s dystopian movie, The Road Warrior, civilization has collapsed and the most valuable thing left in the wasteland is a small, fortified oil refinery. In its sequel, Fury Road, the refinery has become Gas Town, a warlord’s fief trading fuel for loyalty while the people below beg for scraps. It was science fiction. It now feels like a market report.
Retail diesel is roughly $6.50 a gallon, up from $3.69 a year ago. The diesel crack spread, the refiner’s margin over the cost of crude, has broken $100 a barrel, against about $15 before the war. WTI Crude is around $94, cheaper than during the 2022 spike, yet diesel costs more. The difference is going to the refinery gate. Refineries are running at 98% of capacity, and is meeting domestic needs while exporting about 1.5 million barrels of diesel a day peaking at 1.9 million barrels in July. Clearly there is no domestic shortage. But, domestic diesel domestic storage volumes are at record lows. So what’s going on?
Follow the Money
No mystery here: It’s war time profits. Marathon, Valero and Phillips 66 earned a combined $12.6 billion in the second quarter, up from $2.9 billion a year earlier, and returned $6.3 billion to shareholders. Phillips 66 and Valero have since authorized another $15 billion in buybacks, and with diesel margins now double the second-quarter benchmark, the third quarter will be bigger. This is the Gas Town economy.
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