The Refined Edge: Why Diesel and Gasoline Contracts are Outperforming Crude Oil in April 2025

The NYMEX refined product markets defied crude oil’s downward spiral in late April 2025, with ULSD and RBOB gasoline futures showing resilience amid geopolitical and supply-driven volatility. While crude prices faced downward pressure from OPEC+ overproduction and tariff-driven demand concerns, refined products capitalized on tightening inventories and seasonal demand patterns. This divergence underscores critical investment dynamics in energy markets—particularly for those eyeing exposure to downstream refining opportunities or hedging against crude headwinds.

Crude Oil: Stuck in a Bearish Cycle

Crude prices faced persistent headwinds in April, with WTI averaging between $60–$66/bbl. Key factors driving the downturn included:
- OPEC+ Overproduction: Despite a planned 411 kb/d supply increase in May, non-compliance by Iraq, UAE, and Saudi Arabia (exceeding quotas by 390 kb/d collectively) has flooded markets.
- Tariff-Induced Demand Drag: U.S. tariffs and trade tensions reduced global demand forecasts by 300 kb/d, with fears of a sharper slowdown if tariffs on non-energy goods escalate.

By April 25, June WTI settled at $62.64/bbl—a 0.25% drop from the prior session—while Brent lingered near $66/bbl. The Federal Reserve’s hawkish stance and geopolitical uncertainty further amplified volatility, linking crude prices to broader equity market swings.

Refined Products: A Bright Spot Amid the Chaos

While crude struggled, refined products like ULSD and RBOB gasoline demonstrated relative strength, driven by:
1. Tightening Supplies: U.S. gasoline stocks fell for eight consecutive weeks, with implied demand hitting 9.414 million b/d pre-Easter. Distillate demand surged 13% year-on-year, buoyed by industrial activity.
2. Regional Pricing Dynamics: May ULSD futures rose 2.04 cents/gal on April 25 to $2.1641/gal, while June RBOB climbed 0.67 cent to $2.103/gal.

However, regional disparities emerged. Chicago gasoline prices fell ~4 cents/gal due to a switch to June futures, illustrating the complexity of regional market interactions.

The Refining Margin Conundrum

Profitability for refiners, however, remains uneven. Atlantic Basin margins weakened as crude costs outpaced product gains, while Asian refiners (e.g., in Singapore) saw improved returns from sour crude processing. Middle distillate cracks—the spread between refined products and crude—contracted, squeezing margins for diesel-focused facilities.

This divergence suggests investors should favor refiners with exposure to low-cost feedstocks or flexible operations, such as those in Asia, over Atlantic Basin peers facing margin pressures.

Market Outlook: Risks and Opportunities

1. Supply Overhang: OPEC+’s tendency to overproduce—evident in Saudi Arabia’s 9.01 million b/d output (vs. a 8.96 million b/d quota)—threatens to keep crude prices range-bound below $70/bbl.
2. Demand Uncertainty: IEA forecasts 2025 global demand growth at 730 kb/d, but this hinges on resolving trade tensions. A delayed U.S. tariff implementation in May could stabilize prices, while further escalation could push crude below $60/bbl.
3. 2026 Supply Surge: Non-OPEC+ production (led by Brazil and Guyana) is projected to grow by 920 kb/d in 2026, outpacing demand growth of 690 kb/d—a bearish signal for long-term crude bulls.

Investment Takeaways

• Short-Term Plays:
• Consider long positions in RBOB/ULSD futures (e.g., June contracts) if U.S. demand holds post-Easter and inventories remain tight.

• Use crude oil as a hedge against equity market declines linked to Fed policy or geopolitical risks.

• Long-Term Themes:

• Refining Capacity: Invest in refiners with access to low-cost crude (e.g., Caribbean or Asian facilities) and flexible product outputs.

• Geopolitical Leverage: Monitor U.S.-Iran talks and OPEC+ compliance reports—both could trigger sharp price swings.

• Risk Management:

• Avoid prolonged bets on crude’s recovery above $70/bbl until OPEC+ curbs overproduction or demand fears subside.

Conclusion

The April 2025 market data paints a clear picture: refined products are the winners in a crude-constrained environment, but their gains are fragile. With OPEC+ overproduction and macroeconomic risks weighing on crude, investors should prioritize exposure to downstream opportunities—like strong refining margins or regional gasoline demand drivers—while remaining cautious on crude’s ability to sustain recovery above $65/bbl. As the IEA warns, “the balance between supply growth and demand fragility will define the next six months,” and investors ignoring this split between crude and refined markets risk missing one of 2025’s most profitable energy trades.