Material Insights · Understanding the Material World

Crude oil and Refining and reforming

Refineries are crude's customer and crude is their largest cost, so product prices track crude closely and refiners live on the gap between them, the crack spread. In 2026 that gap blew out, with the US Gulf Coast diesel crack above USD 100 a barrel, while India, which imports about 90% of its crude, is one of the world's large product exporters.

Crude oil (energy) and Refining and reforming (energy): 4 relationships.

How they are linked

1. Crude is the feedstock

Physical flow · Strong · Crude oil → Refining and reforming

A refinery exists to split crude into fuels and petrochemical feedstocks, so its runs set crude demand and the crude it can handle depends on its configuration.

  • 258.1 Mtpa India's refining capacity across 22 refineries, 2026
  • 90.4% India's crude import dependence, 2025-26

Complex refineries with cokers and hydrocrackers can run cheaper heavy, high-sulphur crudes and still make diesel and jet fuel, which is why Indian refiners can switch between Gulf, Russian and other grades. Simpler plants need lighter crudes and earn less in tight diesel markets.

Sources: The Secretariat

2. Crack spreads

Cost and price · Asymmetric · Product prices less crude cost → refining margin

A crack spread is the value of the products a refinery makes minus the cost of the crude it uses, and it widens when refining capacity, not crude, is the scarce link.

  • over USD 100/bbl US Gulf Coast diesel crack against WTI on 17 August 2026

The 2026 spike came from several disruptions at once to refining capacity and to product trade. A crack is a gross figure: operating, transport and financing costs still come out of it, so a USD 100 crack is not USD 100 of profit.

Sources: RBN Energy

3. India's export refining

Physical flow · High in India · Imported crude → Indian refineries → product exports

India imports crude, refines more than it needs and exports the surplus, so its refiners capture the crack spread on world markets.

  • 61.5 Mt India's petroleum product exports in 2025-26, worth USD 38.8 billion
  • 51.1% Russia's share of India's crude import value, July 2026
  • about 309 Mt India's planned refining capacity by 2028

Product exports fell from 65.1 Mt in 2024-25 to 61.5 Mt in 2025-26, then their value rose about 63% year on year in August 2026, to USD 6.81 billion, as world cracks widened. Indian refineries had been running as high as 103% of capacity by early 2025, so the planned expansion is the main route to more exports.

Sources: The Secretariat; S&P Global Commodity Insights

4. Price link: product made

Cost and price · Strong · Both ways

Crude is by far the largest refining cost, so product prices and the refinery price index follow it almost one for one.

  • 0.79 monthly change correlation, US refinery index and Brent
  • 0.96 12-month change correlation
  • 1.02 fitted elasticity

The link breaks when refining capacity tightens or slackens: in 2022 and again in 2026 product prices rose faster than crude. An elasticity close to one means refiners pass crude costs through, and their margins come from the spread rather than from the crude price level.

Sources: Material Insights (World Bank, FRED, IMF data)

For investors

Key learnings

  1. Refiners earn the crack spread, not the crude price, so supply shocks that damage refineries or block product trade can lift margins even as crude also rises.
  2. Complex Indian refineries that can switch crude grades and export products are placed to gain from wide diesel cracks such as 2026's, with exports rising about 63% by value in August 2026.
  3. India plans to add about 50 Mt of capacity by 2028, so the margin outlook depends on whether new capacity at home and abroad outruns product demand.

What to track

  • Singapore complex refining margin: The main benchmark for Asian refiners' earnings (Weekly · Reuters; monthly · IEA Oil Market Report)
  • Diesel and petrol crack spreads: Wider cracks signal tight refining capacity and higher refiner margins (Daily · ICE, NYMEX, price reporting agencies)
  • India product exports: Rising exports show Indian refiners capturing world margins (Monthly · PPAC)

For policymakers

Key learnings

  1. India imports about 90% of its crude but is a net product exporter, so refining turns a crude dependence into an export industry that earns foreign exchange.
  2. Reliance on discounted Russian crude, over half of import value in July 2026, ties refinery economics to sanctions policy.
  3. Wide cracks raise domestic fuel costs, so retail pricing rules decide whether households, refiners or the budget bear refining shocks.

What to track

  • Crude import sources by country: Shows exposure to sanctions and chokepoints (Monthly · PPAC, commerce ministry)
  • Refinery capacity utilisation: Runs above 100% leave no slack for demand growth (Monthly · PPAC)

India

India has about 258 Mtpa of refining capacity, imports about 90% of its crude, and exported 61.5 Mt of products in 2025-26, making refining a large earner from the gap between crude and product prices.

Sources

  1. India's fuel export boom masks deeper vulnerability, The Secretariat (2026)
  2. $100/bbl diesel crack, or how 2026 exposed the fragility of global refining, RBN Energy (2026)
  3. India's refining capacity to expand 20% by 2028 on robust run rates, demand growth, S&P Global Commodity Insights (2025)
  4. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)