Gulf Coast refinery margins hit their highest levels in years when the Strait of Hormuz closed in late February.
Four months later, Ras Tanura has restarted, oil fell more than 10% last week and the margin environment that made Gulf Coast refiners the most profitable operators in the world is starting to compress. WTI is at $69.88 and Brent is at $72.45 this morning, both recovering slightly from four-month lows after the U.S. and Iran agreed to halt their latest round of attacks ahead of peace talks resuming in Doha on Tuesday.
How fast Gulf Coast refinery margins compress from here, and what operators and contractors should be doing about it right now, is the question that matters.
Here is where things actually stand.
What happened over the past week
The past seven days produced the most significant supply picture change since the conflict began February 28. Crude shipments through the Strait of Hormuz rose last week to their highest weekly volume since the war started, as Persian Gulf exports recovered to roughly 75% of prewar levels. The physical movement of laden tankers through the waterway removed a significant portion of the geopolitical risk premium that had been supporting oil prices since March.
The bigger development was Saudi Arabia. Saudi Aramco resumed crude loading at its Ras Tanura terminal on the Arabian Gulf coast on June 26, ending a halt that had lasted nearly four months. Two very large crude carriers, each loading approximately 2 million barrels, took on cargo at the terminal with a third vessel waiting nearby. Ras Tanura is one of the largest crude export terminals on the planet, with a prewar capacity exceeding 5 million bpd. Its return to operations changed near-term supply expectations more than any single piece of news since the crisis began.
Brent fell 10.6% for the week and WTI lost 9.6%, the largest weekly drops in a month. WTI settled below $70 per barrel on Friday for the first time since February 27, the day before the war started.
Then the weekend happened. On Thursday Iran targeted a container ship in the Strait. The U.S. struck back Friday. Saturday Iran struck the Panamanian-flagged tanker M/T Kiku carrying more than 2 million barrels of Qatari crude. U.S. Central Command struck 10 Iranian military targets in and near the Strait in response. Both sides then agreed to halt further attacks ahead of Tuesday's Doha talks. U.S. Vice President JD Vance arrived in Switzerland Sunday for high-level talks with the Iranian delegation.
Oil recovered modestly Monday morning on the ceasefire announcement, but ING strategists published a note warning that energy market participants appear too optimistic about the timeline for a recovery in Persian Gulf oil supplies. "This complacency is odd and clearly leaves significant upside risk if the supply recovery proves slow or if we see significant re-escalation," ING's Warren Patterson and Ewa Manthey said.
What Gulf Coast refinery margins actually look like right now
The WTI 3-2-1 crack spread, the industry's standard measure of refining profitability, rose more than 180% from January levels to peak above $54 per barrel during the height of the Hormuz disruption, according to the Dallas Fed's March 2026 Energy Indicators report. That represented the strongest Gulf Coast refinery margin environment operators had seen in years, driven by Gulf Coast refiners filling the product gap left by shuttered Middle Eastern refinery capacity and elevated European and Asian demand for U.S. diesel, jet fuel and gasoline.
With WTI now below $70, Gulf Coast refinery margins are compressing. The exact pace of compression depends on two variables: how quickly Middle Eastern crude supply physically returns to global markets and whether refined product demand holds at the levels that supported elevated crack spreads during the disruption.
The second variable is the one the market may be underweighting right now. Saudi Aramco restarting Ras Tanura does not immediately restore 5 million bpd to global crude markets. The process involves infrastructure integrity reviews on subsea pipelines, single-point mooring buoys and loading arms. Marine insurance markets that effectively shut down for Persian Gulf transit need to normalize as underwriters gain confidence that transits are completing without incident. The hundreds of VLCCs that diverted away from the Gulf during the crisis are not instantly available to resume normal operations. Repositioning a global tanker fleet takes weeks of scheduling and cargo planning.
The EIA's most recent Short-Term Energy Outlook put the 2026 annual average Brent price at $95 per barrel, reflecting the price elevation during the disruption months. That annual average is already below where Brent was trading as recently as three weeks ago. If the Doha talks produce a durable framework this week, the market will price in a faster supply recovery than the physical logistics can actually deliver.
What this means for Gulf Coast operators and contractors right now
The margin compression does not change the operational and capital picture for Gulf Coast refineries and petrochemical facilities in the near term as much as the price headlines suggest. Here is why.
Gulf Coast refiners run primarily on domestic light sweet crude from the Permian Basin priced at WTI. When WTI falls, their feedstock costs fall with it. The crack spread that matters is not the absolute price of crude but the difference between what they pay for crude and what they receive for refined products. As long as product demand holds, a drop in crude prices that is not immediately matched by a drop in product prices actually helps Gulf Coast refinery margins rather than hurting them.
The risk is on the product demand side. If oil prices fall sharply and consumer expectations for lower prices at the pump outpace actual product price declines, refiners can get caught in a temporary margin squeeze. That pattern typically resolves over a period of weeks as product prices catch up to crude movements. The ING note warning about complacency on supply recovery timelines is relevant here because a slower-than-expected return of Middle Eastern product supply is a margin support mechanism for Gulf Coast operators even as crude prices fall.
For petrochemical operators, the picture is more nuanced. Ethylene and polyethylene producers running on Gulf Coast ethane feedstock remain structurally advantaged relative to any Middle Eastern competitor still working through infrastructure restart and supply chain normalization. The IEA described full normalization of Middle Eastern petrochemical production on the same 2027 timeline as crude, which means Gulf Coast producers retain their demand advantage for at least another year regardless of what happens in Doha this week.
For Gulf Coast contractors, the message has not changed from what we reported last month: the deferred maintenance wave is real, the fall turnaround window is compressed and the capital work approved during the high-margin period executes on a multi-year timeline regardless of where crude prices sit when the work orders are cut. The margin environment funded the decisions. The work happens whether or not the margins persist.
The Venezuelan crude feedstock factor
One element of Gulf Coast refinery margin sustainability that gets less attention than it deserves is the Venezuelan crude feedstock diversification Gulf Coast refiners built during the crisis. Valero sourced up to 6.5 million barrels of Venezuelan crude in March alone. Phillips 66 confirmed it could process several hundred thousand barrels per day of Venezuelan crude at its Gulf Coast facilities. Chevron was producing roughly 250,000 bpd in Venezuela and exporting primarily to Pascagoula.
That feedstock diversification does not reverse the moment Ras Tanura restarts. Venezuelan crude is closer, cheaper to transport and well-matched to the coking and desulfurization capacity Gulf Coast refiners carry. The competitive feedstock picture that the crisis accelerated is more durable than the oil price headlines suggest. When Middle Eastern grades return to market, Gulf Coast refiners will have more options, not fewer. That is a margin support mechanism that the current compression narrative underweights.
What to watch this week
The Doha talks on Tuesday are the most important near-term variable for oil prices and Gulf Coast margin sustainability. A durable framework that produces confidence in a full Strait reopening will push prices lower. A breakdown, or another weekend like the one that just passed, pushes them back up.
ING's warning about complacency on supply recovery timelines is worth keeping in mind. Physical supply recovery from a four-month Hormuz disruption takes longer than a diplomatic agreement takes to draft. The 60-day framework that mediators Qatar and Pakistan said U.S. and Iranian officials had agreed to as a roadmap establishes a timeline for continued negotiations, not a switch that restores supply on announcement day.
The operators and contractors who are planning around the physical normalization timeline rather than the headline deal timeline are the ones who will be in the right position when both the diplomacy and the logistics finally align.
Frequently asked questions
What is a crack spread and why does it matter for Gulf Coast refineries?
A crack spread is the difference between the price a refinery pays for crude oil and the price it receives for refined products like diesel, gasoline and jet fuel. It is the primary measure of refinery profitability. The WTI 3-2-1 crack spread peaked above $54 per barrel during the Strait of Hormuz disruption, the highest Gulf Coast refinery margins had reached in years, before beginning to compress as supply returned.
Why did Ras Tanura restarting cause oil prices to fall?
Ras Tanura is one of the world's largest crude export terminals, with a prewar capacity exceeding 5 million bpd. Its four-month closure during the Strait of Hormuz conflict removed a significant volume of supply from global markets. When Saudi Aramco resumed loading on June 26, the market interpreted that as confirmation that Persian Gulf supply was returning, reducing the risk premium that had been built into oil prices since March.
Does lower crude oil hurt Gulf Coast refinery margins?
Not automatically. Gulf Coast refiners buy crude priced at WTI. When WTI falls, their feedstock costs fall with it. If refined product prices hold above crude's decline, margins can actually improve. The risk is on the product demand side, where consumer expectations for lower pump prices can temporarily compress the spread between crude and product prices. That pattern typically resolves within weeks.
How long will it take for Hormuz oil supplies to fully normalize?
Physical normalization of Strait of Hormuz oil flows takes significantly longer than a diplomatic agreement to draft. Saudi Arabia's ADNOC CEO said it will take at least four months to ramp flows to 80% of prewar levels and until Q1 or Q2 2027 for full normalization. Mine clearance, tanker insurance underwriting, fleet repositioning and infrastructure restarts all take time after a deal is signed.
BIC Magazine will continue following this story
This is day 121 of the Strait of Hormuz conflict. Ras Tanura has restarted. The talks resume Tuesday. Brent is at $72 and WTI is below $70 for the first time since the war began. Whatever happens next matters for every refinery, petrochemical facility and contractor on the Gulf Coast.
For our full Strait of Hormuz coverage series, click here.
