US refining margins took a hit on June 25 as the 3-2-1 crack spread — representing the value of producing 3 barrels of gasoline and 2 barrels of diesel from 5 barrels of crude — collapsed to $18.50/bbl, down $4.80 from the June average. The compression is being driven entirely by gasoline weakness, with RBOB futures falling 6.1% to $2.78/gal.
The gasoline demand data in the EIA's weekly report was the trigger. At 8.8 million bpd, implied demand is 4.5% below the same week last year and 2.1% below the five-year seasonal average. Entering the US July 4 holiday period — traditionally peak gasoline consumption season — these numbers suggest both price sensitivity (retail gasoline above $3.50/gal) and structural changes in driving behavior, including higher EV penetration.
Diesel (ULSD) margins have held up relatively better at $22.10/bbl, supported by low inventories. Distillate fuel inventories stood at 118 million barrels, 3% below the five-year average and 2% below year-ago levels. Heating oil demand is out of season, but agricultural and trucking demand provides a baseline floor. The ULSD-Brent spread remains at a healthy $18.50/bbl.
Refinery utilization dipped to 92.1% of capacity, down from 93.5% the prior week. Several independent refiners are beginning to consider run cuts if margins remain at these levels. PBF Energy and Valero have both signaled they may reduce throughput in July. Any significant run reduction would tighten product supply but also reduce crude demand, creating a feedback loop that keeps crude prices under pressure.
Jet fuel demand remains the bright spot, with implied demand at 1.75 million bpd, up 4% year-over-year and exceeding pre-COVID seasonal highs. The jet fuel crack spread stands at $24.50/bbl, providing a profitable outlet for refiners able to shift yields toward middle distillates. However, jet fuel accounts for only 7-8% of the typical US refinery yield barrel.
Export markets for US refined products are also tightening. European diesel imports from the US are down 12% month-over-month as the TTF natural gas price decline has reduced European manufacturing costs. Asian gasoline demand is steady but not growing fast enough to absorb surplus US barrels. The global refining system is becoming more regionalized.
Gasoline margin weakness will lead to refinery run cuts, which ultimately reduces crude demand and keeps downward pressure on WTI. For diesel buyers: the ULSD market is tighter than gasoline, so don't expect the same price relief. Lock in diesel supply for Q3 if you can get a sub-$3.00/gal fixed price. For gasoline: the demand weakness is real and structural — EV adoption is starting to show up in the data.