Urgent war-time demand for European refiners' output is boosting their returns, with the cost falling on those who need to make spot purchases, especially if they are locked into re-selling on pre-war contracts.
Refiners sound the most confident of all Europe's oil market participants, as prices suggest they can pass higher crude costs onto buyers of products, and even sell at a higher margin due to restrictions on product imports from the Mideast Gulf. Soberly but frankly, a European refinery source said if the strait of Hormuz remains closed for at least two months, it will lead to the most profitable month in his company's history.
Refiners that hedged product margins against crude will miss some of the profits. Market participants say European refiners are more hedged than usual this year, tempted by derivative prices on offer during a tight spell in the fourth quarter of 2025.
Europe's refiners are less exposed to Mideast Gulf crude than their Asian counterparts. Some say they draw further reassurance from their use of US light sweet WTI, or Kazakh light sour CPC Blend, neither of which substitutes easily for medium and heavy sour Gulf crude.
The amount of these crudes loading from US and Black Sea ports for Europe in March to date appears to be around 2.67mn b/d, according to as-yet-incomplete Vortexa tracking data, which would be more than the 2.62mn b/d average in 2025.
European refiners are not cutting runs nor finding governments restricting their exports, like their Asian peers. Asian run cuts are encouraging for European refiners, because they dampen potential competition for the crude that is available.
Spot product buyers are paying the most obvious costs of the crisis, as most spot premiums against forward benchmarks have risen rapidly. Buyers on long-term contracts are paying more than before the war, but less than spot buyers as they are exposed to higher benchmarks but pre-war premiums.
Companies that need to buy in the spot market to deliver on long-term contracts are losing the wide margin between the premiums, while companies taking delivery on long-term contracts and re-selling in the spot market are collecting that margin.
Jet fuel benchmarks and spot premiums have rallied most strongly of the products. Jet demand is not yet suffering, partly because European airlines hedge much of their exposure. In effect, they have locked banks into covering much of the cost.
Franco-Dutch Air France-KLM has begun to raise ticket prices, but others are still saying their hedges will preserve their prices. Market participants said it is possible that banks contributed to the extreme spike in jet fuel prices last week, if some felt compelled to buy in order to exit the short side of airline hedges.
At the other end of the spectrum, naphtha is proving the least rewarding product for European refiners, because gasoline is still in low-demand season, and because petrochemical crackers are locked into monthly olefin contract prices, so may cut volumes rather than buy naphtha at current prices.
Both those constraints on naphtha prices are time-limited: gasoline demand will rise in April and May, and petrochemical crackers will be able to set new olefin prices.
At least one petrochemical cracker has cut run rates as feedstock prices have soared. Those integrated with downstream petrochemical units may have more flexibility over sale prices than those selling ethylene and propylene.
Market participants say the outlook is clouded, with the war upending any consensus about near-term fundamentals. Comments like "not fundamentally justified," "the wheels have come off," and "crazy," are not unusual. Brokers have been quoting swaps for clients at spreads of more than $100/t against their peers. Counting the same number of tankers inbound, one trader said "that's a lot," while another said "that's peanuts." One said the market is very quiet, another in the same market says they have seen lots of deals done.
