Rising Crude, Expanding Margins, And The Evolving Global Supply Picture

Oil futures are up around $2/barrel Wednesday morning after Iran has apparently rejected a peace proposal from Qatari mediators, suggesting the offer was nothing more than unacceptable ideas, while Israel’s ruling party has taken a slim lead in national elections, increasing the odds that we’ll see the war restart after U.S. polls close next week.

December product contracts are holding around 2 cent gains for gasoline and 4 cents for diesel while the soon-to-expire November contracts have chopping back and forth across the breakeven line overnight.

Maybe they want to join the LIV tour? Saudi Arabia has reportedly offered to pay the Houthis to stop their attacks as negotiators in Tehran agreed to continue more talks in the coming days. A fire was confirmed at Saudi Arabia’s largest refinery and oil export complex Tuesday after a Houthi strike, but it’s still not clear what assets were damaged.

The stick didn’t work, so they’ll try a carrot. In addition to lifting sanctions that are allowing cargoes of diesel to head towards the U.S., Reports suggest the U.S. is offering new investment from its oil majors as a chip to get Russia back to the negotiating table. A Reuters report Tuesday suggests Russian refineries have already increased their output by around 150mb/day in the back half of October since Ukraine has paused their refinery attacks.

Meanwhile U.S. lawmakers are warning banks, ports and the fuel industry against facilitating imports of Russian diesel that are currently heading towards the east coast. Given the uncertainty surrounding sanctions of the fuel, and the ships it’s traveling on, buyers may be hard to come by, which is exactly what the big trading houses who thrive in the grey zone love as they’ll likely get a significant discount for facilitating the transactions, while U.S. consumers are unlikely to see a dime of difference in the prices they pay.

The API reported an estimated build in U.S. gasoline stocks of 2.39 million barrels last week, while distillate inventories increased by 380,000 barrels. U.S. crude oil stocks were estimated to drop by 2 million barrels on the week, with another 100,000 barrels leaving the SPR. The DOE’s weekly report is due out at its normal time this morning.

The DOE agreed on Friday to loan 400,000 barrels of crude oil from the SPR to Phillips 66 for use at its 264mb/day Westlake (Lake Charles) LA refinery. The “emergency exchange” is “…intended to help offset temporary disruptions affecting crude oil deliveries to the refinery…” but it didn’t specify if those disruptions were a local issue, or the broader supply disruption globally.

Phillips 66 reported Q3 earnings of $5.6 Billion vs $133 million a year ago as its refining earnings went through the roof like most others who had access to crude and a functional plant. The refining segment earning $6 billion vs a $518 million loss last year, while their renewables group earned $191 million vs a $43 million loss a year ago. The latest report consolidates the Borger and Wood River refineries as wholly owned now that P66 has completed the full purchase of those assets.

HF Sinclair reported refining segment income of $2.4 billion for the quarter, compared to $476 million a year ago with average gross margin of $54/barrel. HFS Renewables earned $123 million in income during the quarter after taking a $55 million loss a year ago as the high diesel/high RIN price environment continues to rain on those producers who were able to weather the 2025 storm that put several out of business. HFS also named a new CEO this morning, with Steve Ledbetter set to take the reigns effective January 1, 2027 after an awkward CEO/CFO transition earlier this year.