Will European Refinery Run Rises Boost Diesel Yields and Support Margins?
The International Energy Agency’s July Oil Market Report says that European refinery throughput in July 2025 is projected to be 11.3 million barrels/day, up from 11 million b/d in June and 10.9 million b/d in May. The IEA added “the current strong margin environment and rising crude supplies increase the chances that runs will surprise to the upside in the coming months.”
Rystad Energy’s July Refinery Signals Report supports that forecast, noting on the European refining sector that “with European refineries making a strong recovery from a slump, refiners are now incentivized to boost capacity utilization.” Yet, these higher runs are occurring as European petroleum product demand has been tepid for most products other than diesel.
The main driver behind the more robust European refining margins is a strengthening of diesel crack spreads – the difference between the product’s spot price and crude price that helps refiners measure the profitability of manufacturing a product – which stands at multi-month highs.
These have averaged $31.05/b in the period July 1 – 23, compared with an average of $19.49/b in the second quarter 2025 and $19.55/b in Q1 2025, OPIS data showed. These have offset softer cracks for all other petroleum products across the barrel.
This means European refiners will aim to maximize diesel output to capture the elevated diesel margins. Yet higher runs may not necessarily see a significant rise in diesel output and simultaneously risk producing more products for which demand is already soft, because raising diesel yields may not be as straightforward as implied in the above statements.
European refiners crude slate currently favors sweet crude and this may limit diesel output. In April, the most recent month for which there is data, for the major crude grades supplied by both OPEC and non-OPEC producers to European refiners, the IEA estimated refineries consumed 3.06 million b/d of sweet crude, 1.19 million b/d of medium crude and 0.26 million b/d of heavy crude.
Sweet crudes will yield more gasoline and less diesel, while producing more naphtha. Even though diesel output can be increased by using upgrading units, diesel upgrading capacity may not be sufficient to raise diesel yields markedly.
Medium crudes produce more diesel and jet/kerosene, which can be boosted by upgrading capacity. They are, however, in limited supply for European refiners and market reports indicate that the flow of medium sour crude to Europe will remain depressed in June and July.
Furthermore, a glance at European refining margins shows that the highest margins are generated by units running sweeter crude. The IEA showed the highest refining margin in June was generated by a refinery running light sweet crude with upgrading units (such as a hydrocracker or fluid catalytic cracker) and integrated with a petrochemical unit – this would consume naphtha produced by the refinery.
This type of refinery generated a margin of $7.42/bbl. A basic refinery with no upgrading and running medium sour crudes, however, only made a margin of $2.36/bbl in the same month – the lowest that month.
Thus, European refineries’ ability to produce extra diesel may be curbed by the degree to how hard they can run their hydro-cracking units.
Another consideration is that the higher diesel cracks may start to come off as more diesel flows to the market.
An RBC Capital Markets Report released Thursday highlighted this very point, noting the bank sees diesel cracks deteriorating in the second half of 2025 as the pillars of less supply, improved demand and lower refinery output that supported its rally begin to crumble.
The IEA also sees diesel demand falling, as it forecasts gasoil, mainly diesel, demand will fall by around an estimated 2 million b/d in 2025 and 2026.
It also projects that gasoline buying interest will, over the same period, rise by 1.7 million b/d. Yet gasoline crack spreads are currently soft and trailing those for gasoil: $11.44/b for gasoline versus $17.25/b that the IEA calculated for June.
Higher European refinery runs to capture higher diesel cracks may, therefore, not only significantly lift diesel yields and arrive when diesel cracks start to worsen. The higher runs may also create length for other products that could ultimately lead to weaker refining margins.
–Reporting by Yazdi Merchant, ymerchant@opisnet.com