Refinery Margin
The profitability of turning crude oil into petrol, diesel, and other products — the spread between what refiners pay for crude and what they receive for refined products.
Definition
The refinery margin is the difference between the total value of refined products yielded from a barrel of crude oil and the cost of the crude oil itself. It represents the gross profitability of the refining process, expressed in US dollars per barrel of crude processed.
The refinery margin is closely related to (but not identical to) the crack spread — a simplified market proxy that can be calculated and traded from publicly available product and crude prices. See our crack spread glossary entry for that specific term.
For how refinery margins fit into the pump price, see our guide to petrol price per litre explained.
Components of the refinery margin
| Component | Description | Typical % of pump price |
|---|---|---|
| Crude oil cost | Purchase price of crude (Brent, WTI, or grade-specific) | ~45–55% |
| Gross refinery margin | Product value minus crude cost | ~5–15% |
| – Energy costs | Gas and electricity for distillation, processing units | ~2–4% |
| – Catalyst and chemical costs | HDS catalysts, FCC catalysts, treating chemicals | ~0.5–1% |
| – Labour and maintenance | Refinery staffing, planned and unplanned maintenance | ~1–2% |
| Net refinery margin | Gross margin minus variable operating costs | ~2–8% |
| Excise duty & taxes | Fixed excise (UK ~52.95p/l); VAT | ~35–50% (high-tax markets) |
| Distribution & retail margin | Wholesale, transportation, forecourt operating costs | ~3–7% |
Crack spreads: measuring refinery margin in the market
Because individual refinery margins are proprietary, the market uses crack spreads as publicly observable proxies. The most common benchmarks:
- 3-2-1 crack spread: (2 × gasoline price + 1 × gasoil price) − (3 × crude price). Represents the approximate product yield of a simple refinery processing 3 barrels of crude to produce 2 of gasoline and 1 of gasoil.
- Gasoil crack (European diesel crack): ICE Low Sulphur Gasoil price minus Brent crude. The most watched European distillate margin. Spiked to $50–60/barrel in 2022 (vs normal $15–25/barrel).
- Gasoline crack (European): Eurobob gasoline price minus Brent. Seasonal — typically highest in summer (driving season demand).
- Jet fuel crack: Jet A-1 price minus Brent. Closely watched by airlines as a hedge reference. Strongly correlated with the gasoil crack.
Crack spreads can be hedged using CME futures (New York Harbor RBOB gasoline crack, ULSD crack) or ICE futures (gasoil crack). Refiners use these to lock in margins on crude already purchased; product consumers (airlines, trucking) use them to hedge future fuel costs.
Historical refinery margin context
| Period | Typical European refinery margin | Driver |
|---|---|---|
| 2015–2019 (normal market) | $4–10/barrel | Adequate capacity; normal demand |
| 2020 (COVID) | Negative to $2/barrel | Demand collapse; crude still being processed |
| 2021 (recovery) | $5–12/barrel | Demand recovering; supply tightening |
| 2022 (Russia-Ukraine crisis) | $20–40/barrel (peak) | Russian diesel sanctions; distillate shortage |
| 2023 (normalisation) | $8–18/barrel | New supply arriving; demand growth moderating |
| 2024–2026 (new supply wave) | $5–14/barrel | ME refinery capacity additions compressing margins |
European refinery margins in mid-2022 reached levels not seen since the 1970s. The Russia-Ukraine conflict removed approximately 1.5–2 mb/d of Russian diesel exports from European markets via sanctions. Simultaneously, European refinery utilisation was limited by maintenance backlogs (COVID-deferred turnarounds). The resulting distillate shortage pushed gasoil crack spreads to $50–60/barrel — adding approximately 10–15 ct/litre to diesel pump prices on top of the crude price increase. For the broader 2022 context, see our global diesel shortage analysis.
For the structural impact of new Middle Eastern refinery capacity on margins, see our diesel price outlook 2027. For how refinery margins relate to sour crude processing, see our sour crude glossary entry. For the crack spread technical detail, see our crack spread entry.
Frequently asked questions
-
What is a refinery margin?
- A refinery margin is the difference between the total value of refined products (petrol, diesel, jet fuel, etc.) produced from a barrel of crude and the cost of the crude itself. Expressed in $/barrel, it represents gross refining profitability. Typical net margins are $5–15/barrel in normal markets, contributing approximately 5–10% of pump price. Margins spiked to $20–40/barrel in 2022 due to distillate shortages following Russian diesel sanctions.
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What is a crack spread?
- A crack spread is the price difference between a refined product and crude oil — a publicly observable proxy for refinery margin. The 3-2-1 crack (2 barrels gasoline + 1 barrel gasoil minus 3 barrels crude) is the most common benchmark. Individual cracks — gasoil crack, gasoline crack, jet crack — measure the margin on specific products. Crack spreads are tradeable on CME and ICE as hedging instruments for refiners and product consumers.
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How do refinery margins affect petrol and diesel prices?
- In normal markets, refinery margins add ~5–10% (~5–15 ct/l) to pump prices above the crude cost. When product supply is tight relative to crude (due to refinery outages, sanctions, or structural capacity shortfalls), margins spike — adding 10–20+ ct/l to pump prices above what crude alone would imply. The 2022 European diesel price spike was partly a refinery margin phenomenon: Brent was ~$100/bbl, but diesel pump prices were disproportionately higher because the gasoil crack had doubled from normal levels.