EIA: Crack Spreads to Stabilize in 2025

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--After several years of decline, the U.S. Department of Energy said that a downturn in refinery capacity should help ease the corporate pain from lower refinery margins, though the market may look relatively unchanged next year.

The U.S. Energy Information Administration (EIA), the statistical arm of the Energy Department, said it expected total U.S. refining capacity to average 17.9 million barrels per day (BBL/d) by the end of next year, about 3% lower than at the start of 2024.

That, in turn, should help support margins, or crack spreads, for major energy companies. The crack spread is the difference between production costs and the selling price for refined petroleum products such as gasoline and diesel.

Joe DeCarolis, the administrator of the EIA, said his agency expects some welcome stability by next year, but did not express optimism about a bull market for refined products.

"Crack spreads have been declining steadily since 2022, and we expect them to hold steady next year, even with the decrease in refining capacity," he said Wednesday.

Much of the decline in processing capacity comes from recent announcements. Citing "market dynamics," Phillips 66 (NYSE:PSX) (Houston, Texas) in October announced plans to shutter operations at its 133,000-BBL/d Los Angeles Refinery complex by the end of 2025, sidelining about 85,000 barrels of refined products per day in the process.

Earlier this month, LyondellBasell (NYSE:LYB) (Rotterdam, Netherlands) unveiled plans to shutter its Houston Refinery by the first quarter, removing 268,000 BBL/d of refined products from the market.

Most companies, meanwhile, are taking a hit on weaker crack spreads. Phillips 66 reported $346 million in earnings during the three-month period ending September 30, a 65% decline from the previous quarter.

Energy companies might not see much relief next year, meanwhile, given recent forecasts for the price of oil. Oil prices are already moving lower amid fears that tariffs proposed by U.S. President-elect Donald Trump would curb economic growth.

On Wednesday, the EIA said it expected the price for Brent crude oil, the global benchmark, to average $78 per barrel during the first quarter of next year as oil production growth leads to a market surplus.

Brent on Thursday was trading at about $73 per barrel. Any downturn may be bad for the corporate world, but it could bring relief to the U.S. consumer struggling with the lingering inflationary pressures that built up during the early post-vaccination stage of the COVID-19 pandemic.

EIA estimated that a gallon of regular unleaded gasoline at the retail level should average $3.20 next year, down from the expected $3.30 per gallon average for 2024.

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