Refiners Suffer Technical Damage Amid Valuation Opportunities
Refiners suffered technical damage due to high refinery utilization as WTI and Brent crude oil prices surged amidst the Iran conflict. Companies running at capacity faced supply constraints, making the refiners a hot trade.
In the first quarter of 2026, the global oil market experienced a sharp increase in crude oil prices due to military action in the Middle East and the de facto closure of the Strait of Hormuz, which disrupted oil and petroleum product shipments. The front-month futures price of Brent crude oil surged from $61 per barrel at the start of the year to $118 per barrel by the end of the quarter, marking the largest inflation-adjusted increase since 1988. WTI crude oil prices also rose, though not as sharply, due to plans to release crude from the Strategic Petroleum Reserve. The Brent-WTI price spread widened significantly, peaking at $25 per barrel on March 31, the highest in over five years.
As crude oil prices climbed, refinery margins and utilization rates increased. U.S. refineries operated at levels exceeding the five-year average, driven by strong demand for distillate and jet fuel. High distillate crack spreads—measuring refinery margins—reached $1.42 per gallon in March, the highest since 2022. However, the intense utilization placed technical strain on refining infrastructure, particularly as many U.S. refineries had already lost 1.1 million barrels per day of capacity since the start of the pandemic. This loss of refining capacity, combined with high utilization, created supply constraints that amplified price pressures in refined product markets.
Gasoline, diesel, and jet fuel prices all rose sharply in response to higher crude oil prices and reduced refining capacity. U.S. retail gasoline prices reached $3.99 per gallon, while diesel prices hit $5.40 per gallon, the highest in real terms in over two years. Refiners faced additional challenges as they attempted to shift production between distillate and jet fuel to meet demand, though technical limitations constrained their flexibility.
The combination of geopolitical tensions, constrained refining capacity, and high utilization has made refiners a focal point in the energy market. Investors and analysts are closely monitoring how refiners manage these pressures and whether further disruptions could impact global fuel supply chains.
