Surging Crude and Product Prices begin to affect Asphalt Markets
Crude and petroleum product prices surged this week as conflict broke out in the Middle East. The US and Israel launched air and sea attacks against Iran, which has caused many other countries to be involved in the conflict. The Strait of Hormuz was closed by Iran to ship traffic, with the US Navy responding by sinking over 40 Iranian ships. Extensive missile, drone, and air strikes have caused havoc across the region involving many nearby countries. Oil prices have surged worldwide along with most petroleum products, especially fuel oil, diesel, and jet fuel. LNG supply has also been affected. Many Middle East facilities and refineries have been idled due to the conflict. The US and Western Hemisphere are quickly seeing reactions in the crude, refining, and asphalt markets.
Asphalt markets in the US have gone into turmoil, with participants unwilling or unable to settle upon price adjustments. Wholesale asphalt markets are being pushed strongly higher by refinery economics from suppliers. Meanwhile, buyers who have benefited from very stable wholesale pricing over the last year and a half are very reluctant to make purchases with sharply climbing prices. There were limited new sales this week, with new volumes going at higher prices. However, most suppliers had already negotiated March deliveries and volumes last week. Participants all conveyed that prior commitments and negotiated sales were being honored at those prices and volumes. Furthermore, most refiners noted that subsequent volumes and new purchases will be at notably higher levels, unless crude oil and refinery economics fall back to the levels of late February.
Throughout this week, crude costs and product shortages in some parts of the world affected refinery economics severely. Increased crude and refining costs have driven asphalt breakeven prices sharply higher, above most current wholesale price levels. These changes have been seen most dramatically and quickly at coastal refiners who are closely tied to international benchmark crude and international product pricing. Many refiners have conveyed that they will stop producing asphalt with the current refinery economics unless there is a notably increase in asphalt prices to keep in line with current production costs. Several refiners have reported that they have curtailed asphalt production, lightened crude slates, or are focusing on other alternatives such as coker feed or fuel oil production. This is occurring most readily at coastal refineries, with inland refineries more insulated from the rapidly changing crude and product markets. These developments could create tightness of supply in the asphalt markets.
Many inland refineries are supplied by landlocked Canadian crude sources supplied by pipeline. While those crudes are priced off benchmarks that are heavily influenced by other international benchmark crude prices, they have not increased as rapidly or to the same extent as those international crudes. That has tempered the reaction by many Midwest and Rocky Mountain refiners, with their refinery economics not as harshly affected by the conflict and its influences on the petroleum markets yet. Those markets are also experiencing upward pressure on asphalt wholesale prices, but to a lesser extent than coastal refiners who are contending with higher absolute crude costs and drastically higher waterborne shipping costs.
Rising refining costs are set to sharply increase asphalt wholesale and retail pricing in the coming weeks in the US. This situation is occurring so early in the year, before most paving has begun. Most terminal tanks have already been filled in anticipation of the paving season’s start, which has tempered some of the initial reaction to rising refinery and crude costs. Foreign asphalt pricing has begun to affect the US market, with purchases occurring for export volumes at pricing notably above last week’s levels. International pricing has soared over the last week, with European delivered pricing now at around US$500/ST. As crude and fuel oil prices increase, European, African, and Far East pricing will continue to rise in tandem. The US markets will also be pressured higher, unless the conflict deescalates and crude and product prices decline sharply.
As US refining markets adjust to these new economics, it is likely to see less asphalt production occurring until asphalt prices move notably higher. Refineries will likely adjust their slates to maximize margins which could reduce supply across the US. Additionally, some coastal producers could export more material to Europe or further away destinations should those economics become more attractive than domestic sales. With all these drastic changes pending, most participants are hoping for a quick resolution to the conflict in Iran and the stabilization of petroleum prices. The sooner that occurs, the less impact it will have on the asphalt markets. Nonetheless, the current stage has markets primed to experience a very volatile first half of 2026. Many suppliers have already released letters noting expected sharp increases in wholesale and retail pricing over the coming weeks, should the refining situation not rapidly return to late-February levels.
Poten will continue to follow these ever-changing developments and their impacts on asphalt markets. As the spring paving season approaches in the US, it is crucial to track these changes closely and stay abreast of them and their implications. Severely volatile markets have proved challenging for refiners, resellers, contractors, and others in the asphalt and paving industry. Paving seasons such as 2022, or earlier in 2008 when crude and product prices escalated rapidly, were challenging for market participants, and this year is poised to present some of those same challenges. We will continue to keep our customers informed as market developments unfold throughout the year.
Asphalt markets in the US have gone into turmoil, with participants unwilling or unable to settle upon price adjustments. Wholesale asphalt markets are being pushed strongly higher by refinery economics from suppliers. Meanwhile, buyers who have benefited from very stable wholesale pricing over the last year and a half are very reluctant to make purchases with sharply climbing prices. There were limited new sales this week, with new volumes going at higher prices. However, most suppliers had already negotiated March deliveries and volumes last week. Participants all conveyed that prior commitments and negotiated sales were being honored at those prices and volumes. Furthermore, most refiners noted that subsequent volumes and new purchases will be at notably higher levels, unless crude oil and refinery economics fall back to the levels of late February.
Throughout this week, crude costs and product shortages in some parts of the world affected refinery economics severely. Increased crude and refining costs have driven asphalt breakeven prices sharply higher, above most current wholesale price levels. These changes have been seen most dramatically and quickly at coastal refiners who are closely tied to international benchmark crude and international product pricing. Many refiners have conveyed that they will stop producing asphalt with the current refinery economics unless there is a notably increase in asphalt prices to keep in line with current production costs. Several refiners have reported that they have curtailed asphalt production, lightened crude slates, or are focusing on other alternatives such as coker feed or fuel oil production. This is occurring most readily at coastal refineries, with inland refineries more insulated from the rapidly changing crude and product markets. These developments could create tightness of supply in the asphalt markets.
Many inland refineries are supplied by landlocked Canadian crude sources supplied by pipeline. While those crudes are priced off benchmarks that are heavily influenced by other international benchmark crude prices, they have not increased as rapidly or to the same extent as those international crudes. That has tempered the reaction by many Midwest and Rocky Mountain refiners, with their refinery economics not as harshly affected by the conflict and its influences on the petroleum markets yet. Those markets are also experiencing upward pressure on asphalt wholesale prices, but to a lesser extent than coastal refiners who are contending with higher absolute crude costs and drastically higher waterborne shipping costs.
Rising refining costs are set to sharply increase asphalt wholesale and retail pricing in the coming weeks in the US. This situation is occurring so early in the year, before most paving has begun. Most terminal tanks have already been filled in anticipation of the paving season’s start, which has tempered some of the initial reaction to rising refinery and crude costs. Foreign asphalt pricing has begun to affect the US market, with purchases occurring for export volumes at pricing notably above last week’s levels. International pricing has soared over the last week, with European delivered pricing now at around US$500/ST. As crude and fuel oil prices increase, European, African, and Far East pricing will continue to rise in tandem. The US markets will also be pressured higher, unless the conflict deescalates and crude and product prices decline sharply.
As US refining markets adjust to these new economics, it is likely to see less asphalt production occurring until asphalt prices move notably higher. Refineries will likely adjust their slates to maximize margins which could reduce supply across the US. Additionally, some coastal producers could export more material to Europe or further away destinations should those economics become more attractive than domestic sales. With all these drastic changes pending, most participants are hoping for a quick resolution to the conflict in Iran and the stabilization of petroleum prices. The sooner that occurs, the less impact it will have on the asphalt markets. Nonetheless, the current stage has markets primed to experience a very volatile first half of 2026. Many suppliers have already released letters noting expected sharp increases in wholesale and retail pricing over the coming weeks, should the refining situation not rapidly return to late-February levels.
Poten will continue to follow these ever-changing developments and their impacts on asphalt markets. As the spring paving season approaches in the US, it is crucial to track these changes closely and stay abreast of them and their implications. Severely volatile markets have proved challenging for refiners, resellers, contractors, and others in the asphalt and paving industry. Paving seasons such as 2022, or earlier in 2008 when crude and product prices escalated rapidly, were challenging for market participants, and this year is poised to present some of those same challenges. We will continue to keep our customers informed as market developments unfold throughout the year.
