U.S. Refining Margins Drop as Traders Weigh Biden’s Plan on Fuel

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(Bloomberg) — The profit margin on churning oil into fuel fell to the lowest since September as the market weighs the Biden Administration’s options to ease retail prices.

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The Nymex 3-2-1 crack spread, a rough gauge of refining margins for processing crude into gasoline and distillates, dropped to a session low of $16.63 a barrel Friday, the lowest since September 23rd. The spread traded as high as $24.93 in August and has been choppy since.

Speculation that the Administration is considering easing biofuel blending requirements for fuel has pressured prices of renewable fuel credits, which are typically baked into refining margins, traders said. Refinery utilization rates are also beginning to climb after a seasonal maintenance period, raising expectations of additional supplies and weighing on margins, they said.

Pump prices are near a seven-year high and a primary driver behind inflation. Strong margins incentivize refiners to make more fuel. The Biden Administration is also exploring other options, including tapping the nation’s emergency oil reserves or even restricting exports of either crude oil or gasoline.

Refining utilization ticked up to nearly 87% last week, the highest in a month, according to the Energy Information Administration.

Larger trends such as easing concerns about a global energy crunch have also contributed.

“The siege in the other energy markets have eased, with more supply from natural gas supply from Russia finally coming to market and moves by China to lower coal prices,” said John Kilduff, founding partner at Again Capital LLC. “The crack spreads have been very much impacted by these macro factors.”

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