Analysis: 2026 Fuel Margins to Grow Despite Low Oil Prices


   
Karim Bastati
DTN Analyst

    

   VIENNA (DTN) -- U.S. refining margins rose to the highest in years in the 
fall of 2025 and they remain relatively high propelling refiners to delay 
non-essential maintenance and maximize operations.

   Margins for fuel producers and sellers have improved markedly from a year 
earlier but are still lagging 2023 averages. Fuel wholesale and retail margins 
are forecast to continue to grow this year and next -- despite softening crude 
prices.

   At the start of 2025, crack spreads broke their multi-year long downward 
trend, rising rapidly and spiking at record highs in November, spearheaded by a 
rally in European diesel prices. Using a simplified proxy formula -- the 
wholesale cost of two barrels of gasoline and one barrel of diesel, minus the 
cost of three barrels of crude -- U.S. Energy Information Administration (EIA) 
data show that the average barrel of crude purchased by U.S. refiners yielded 
some $2.22 bbl, or 9%, more in 2025 than a year earlier, with the difference 
peaking at $32.78 bbl in November.

   This came as input costs for refiners dropped much more precipitously than 
fuel prices. EIA data show the average crude acquisition cost for U.S. refiners 
in 2025 decreased more than 13% year-on-year, while average wholesale gasoline 
and diesel prices were down 9% and 5%, respectively.

   While gasoline wholesale margins improved only marginally, up 3% 
year-on-year to $0.57 gallon, diesel wholesale margins shot up 21% from 2024, 
surpassing the $1.00 gallon mark in November for the first time in two years. 
Diesel wholesale margins were supported by global crude oversupply leading to 
lower input prices, low diesel inventories and fears of shortage due to the 
European Union ban proposal, which fueled a rally in diesel futures.

   Retail margins -- the difference between the total retail price for the fuel 
and its wholesale price -- also improved, albeit at a slower pace. Last year, 
average retail margins for gasoline were up 2.1% year-on-year after rising 6% 
in 2024, while diesel retail margins were up just 1.1%, after dropping 4.3% the 
year before.

   This trend is likely to continue at an even faster pace this year as the 
divergence between crude and fuel prices is likely to continue. The world is 
facing a crude oil glut as supply additions continue to outpace demand growth. 
Estimates pin the average oversupply this year between 1.5 and 3.7 million bpd, 
pressuring crude prices.

   The drop in fuel prices, however, will likely be much less pronounced as 
global refining capacity additions slow down, and both the United States and 
Europe are set to lose refining capacity.

   The EIA, in its February Short-Term Energy outlook, forecast that wholesale 
fuel prices will drop by as much 7%, contrasting with the 16% decline in crude 
prices. This translates to a 22% rise in wholesale gasoline margins and a 10% 
increase in diesel margins for refiners. Gasoline and diesel retail margins are 
also expected to continue growing, by 2.1% and 1.6% year-on-year, respectively.

   While the drop in U.S. refining capacity is set in stone, with some closures 
likely leading to higher gasoline prices in certain regions of the country, 
crude supply risks have only grown so far this year, making the prognosticated 
steep decline in oil prices less certain.

   Crude prices rocketed in January amid mounting tensions between the U.S. and 
Iran, and a diplomatic solution to the war in Ukraine seems unlikely to arrive 
any time soon. A war with Iran carries the potential to not only jeopardize the 
3.2 million bpd of oil supply from the country. The risk of neighboring 
countries, some of the largest oil producers in the world, being dragged into 
an armed conflict aside, Iran could temporarily blockade the Strait of Hormuz, 
through which a fifth of global oil supply transits daily.

   Additionally, the return of Venezuelan crude oil flows to the U.S. may push 
wholesale margins even higher, as it will result in lower prices for heavy sour 
crude grades, a staple feedstock for U.S. refineries. 

    




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