Differentials for U.S. sour crude Mars have been in a steep decline this month and hit their widest discount to benchmark crude futures since October this week, according to data from brokers, as refiners faced slimmer profit margins due to weak demand.
The offshore crude grade’s discount to West Texas Intermediate crude (WTI) at the Cushing, Oklahoma, hub widened to a $2.10 per barrel on Friday, their weakest since Oct. 3, according to data from LSEG.
Differentials widened further by 10 cents to $2.20 on Monday; the day of the WTI front-month expiry followed by half a day of the roll trading period, which is typically a more volatile session. Traders use the roll period between contracts to square up positions.
Latest prices on Wednesday showed a slight narrowing to $1.90.
Mars has been in decline as refiners have been making less of a profit on narrower gasoline cracks analysts said, the difference between gasoline futures and WTI crude , amid a slow start to the U.S. summer driving season, driving down refiners’ demand for sour grades.
The gasoline crack premium has peaked at around $25 per barrel so far this summer driving season, compared with a high last summer of just over $41 per barrel.
“Weak margins should weigh on secondary unit utilization and drive disproportionately lower demand for sours compared with sweets,” said Energy Aspects oil markets analyst, Livia Gallarati.
U.S. refinery crude runs fell by 521,000 barrels per day (bpd) last week, according to the Energy information Administration (EIA), to 16.41 million bpd, marking a 10-week low, the lowest rate so far this driving season.
However, product supplied of gasoline, the EIA’s measure of demand, rose by 673,000 bpd, the biggest weekly increase since November, to 9.46 million bpd, the most for this time of the year since 2021’s record high of over 10 million bpd, the data showed.
Mars values could still dwindle further on weakened Asian demand for U.S. grades, according to Gallarati, after Washington gave India’s Reliance Industries approval to resume importing Venezuelan oil, a source familiar with the matter said on Wednesday. (Reporting by Georgina McCartney in Houston Editing by Marguerita Choy)