Margins will ease considerably in the fall, although longer trade routes and less spare capacity than prior to the pandemic will still provide some bullish support. As new capacity comes online toward the end of 2022 and in 2023, margins will continue to ease.
NYH Refining Margins
New York Harbor refining margins have strengthened significantly since March, rising to more than $40 per barrel in April and early in May. Although, ULSD spreads to Brent have fallen by more than half from recent highs, they remain at more than $40 per barrel adjusted for RVO, more than double typical levels. Meanwhile, gasoline spreads to crude have nearly quadrupled from less than $10 in early April to roughly $40 per barrel in recent trading.
After averaging roughly $40 per barrel during the first few weeks of May, NYH benchmark refining margins to Brent softened to $35 per barrel in recent trading. ESAI Energy expects that margins will continue to weaken from current levels, as they are currently well above levels needed to encourage a strong throughput response. But they will remain well above typical levels this summer as refiners contend with low product stocks and seasonally high transport fuel demand. Margins will soften beyond the summer as stocks rebuild, but the expected reshuffling of trade and higher logistics costs for European imports and Russia exports will continue to support higher margins.