What does an oil refinery do?

An oil refinery converts crude oil into useful petroleum products: petrol (gasoline), diesel, jet fuel, LPG, kerosene, heavy fuel oil, asphalt, and petrochemical feedstocks. It does this through a series of physical and chemical processes — primarily atmospheric distillation to separate fractions by boiling point, followed by conversion units (cracking, reforming) to improve yield and quality, and treating units to remove impurities like sulfur.

What is refinery throughput?

Refinery throughput is the volume of crude oil processed by a refinery over a given period, usually measured in barrels per day (bpd) or tonnes per year. Global refinery throughput is approximately 80–85 million bpd. A large modern refinery processes 300,000–600,000 bpd; a small simple refinery may process only 20,000–50,000 bpd.

What is refinery margin and crack spread?

The refinery margin (also called the crack spread) is the difference between the value of the refined products a refinery produces and the cost of the crude oil input. A simple way to estimate it is the '3-2-1 crack spread': from 3 barrels of crude, a refinery produces approximately 2 barrels of petrol and 1 barrel of diesel. When product prices are high relative to crude, the crack spread widens; when crude is expensive relative to products, it narrows or goes negative.

What is a complex refinery vs a simple refinery?

A simple (hydroskimming) refinery only performs atmospheric distillation and basic treating — it can only profitably process light sweet crude and yields a large share of heavy fuel oil. A complex refinery adds conversion units (vacuum distillation, catalytic cracking, hydrocracking) allowing it to process heavier, sourer crude grades and convert more of each barrel into high-value petrol and diesel. Complexity is measured by Nelson Complexity Index (NCI); simple refineries score 1–5; complex refineries score 8–15+.

Refinery

The industrial facility that converts crude oil into petrol, diesel, jet fuel, and hundreds of other products — the essential link between the oil well and the forecourt.

Definition

An oil refinery (petroleum refinery) is an industrial plant that processes raw crude oil into petroleum products suitable for use: motor fuels (petrol, diesel, aviation jet fuel), heating fuels, lubricants, asphalt, and petrochemical feedstocks. The refining process separates crude oil's constituent hydrocarbon fractions by boiling point and then chemically converts and treats them to meet product quality specifications.

Without refineries, the crude oil extracted from the ground cannot be used directly in vehicles, aircraft, or heating systems. The refinery is the critical intermediate step between the upstream oil production sector and the downstream fuel distribution and retail network that delivers fuel to the pump.

The refining process: key stages

1. Atmospheric distillation (crude distillation unit — CDU)

Crude oil is heated to ~350°C and fed into an atmospheric distillation column. Different hydrocarbon fractions separate by boiling point: lighter fractions (LPG, naphtha, petrol) rise to the top; heavier fractions (kerosene, diesel, atmospheric gasoil) condense at intermediate levels; the heaviest material (atmospheric residue) falls to the bottom.

2. Vacuum distillation

The atmospheric residue is further processed in a vacuum distillation unit (VDU) at reduced pressure, allowing heavier fractions to be separated without thermal decomposition. Vacuum gasoil is extracted and fed to downstream conversion units; vacuum residue becomes the feedstock for visbreaking, coking, or bitumen production.

3. Conversion units (cracking and reforming)

Simple distillation alone yields too much heavy fuel oil and not enough petrol and diesel for modern demand patterns. Conversion units chemically break heavy molecules into lighter, more valuable ones:

Fluid Catalytic Cracker (FCC): Converts vacuum gasoil into petrol-range products using a catalyst at high temperature. The FCC is the heart of most complex refineries.
Hydrocracker: Uses hydrogen and a catalyst to convert heavy gasoil into high-quality diesel and jet fuel. More expensive than FCC but produces higher-value distillate products.
Catalytic reformer: Converts low-octane naphtha into high-octane reformate for petrol blending, while producing hydrogen used elsewhere in the refinery.
Visbreaker / coker: Converts vacuum residue into lighter products; a delayed coker produces petroleum coke (used as industrial fuel or anode material) as a by-product.

4. Treating and blending

Intermediate streams must meet specification before they become finished products:

Hydrodesulfurization (HDS): Removes sulfur from diesel, jet fuel, and petrol streams — required to meet ultra-low-sulfur fuel standards (ULSD, Euro 6 diesel)
Merox treater: Removes mercaptans from light streams
Blending: Multiple intermediate streams are blended to hit finished-product octane (petrol) or cetane (diesel) specifications, with additives mixed in

Refinery unit	Input	Key output
Crude distillation (CDU)	Crude oil	Naphtha, kerosene, diesel, atmospheric residue
Vacuum distillation (VDU)	Atmospheric residue	Vacuum gasoil, vacuum residue
Fluid catalytic cracker (FCC)	Vacuum gasoil	Petrol components, LCO, FCC bottoms
Hydrocracker	Heavy gasoil	Diesel, jet fuel, naphtha
Catalytic reformer	Naphtha	High-octane reformate, hydrogen
Hydrodesulfurizer (HDS)	Diesel / naphtha / jet	Low-sulfur products
Delayed coker	Vacuum residue	Coker naphtha, coker diesel, petroleum coke

Simple vs complex refineries

Refinery complexity describes how many downstream conversion units a refinery has beyond basic distillation. The Nelson Complexity Index (NCI) quantifies this:

Simple (hydroskimming) refinery: NCI 1–4. CDU + hydrotreating only. Limited to light sweet crude; produces significant heavy fuel oil. Increasingly uneconomic as heavy fuel oil demand falls.
Medium complexity refinery: NCI 5–7. Adds FCC or reformer. Can run a wider crude slate.
Complex refinery: NCI 8–12. FCC + hydrocracker + coker. Can run heavy sour crude and maximise diesel/petrol yield. Most competitive modern refineries.
Very complex refinery: NCI 12+. Integrated petrochemicals plus fuels. Examples: Saudi Aramco Motiva (Port Arthur, TX), ADNOC Ruwais, SK Innovation Ulsan.

Complex refineries can profitably process cheaper sour crude grades (e.g., Arab Heavy, Canadian oil sands) that simple refineries cannot handle efficiently — a significant competitive advantage given that sour crude trades at a discount to sweet benchmarks.

Refinery margin and crack spread

The refinery margin (gross refining margin, or crack spread) is the revenue a refinery earns from selling products minus the cost of the crude oil input. It is the economic justification for refining.

The most common approximation is the 3-2-1 crack spread: from 3 barrels of crude, approximately 2 barrels of petrol and 1 barrel of diesel are produced. The spread equals:

(2 × petrol price + 1 × diesel price − 3 × crude price) ÷ 3 = crack spread in $/bbl

When crack spreads are wide (product prices high relative to crude), refineries run at maximum throughput; when spreads are tight or negative, refineries cut runs or switch crude slates. For more on crack spreads, see the crack spread glossary entry.

The crack spread is distinct from the refinery gate price, which is the price at which the refinery sells finished product to distributors — the first wholesale price in the supply chain to the pump.

How refinery economics connect to pump prices

The refinery is where crude oil price signals are converted into product price signals. When crude rises, refinery input costs rise and the refinery gate price of petrol and diesel rises — feeding through to the wholesale market and eventually to the pump. When crack spreads widen (e.g., during a diesel shortage), product prices rise even if crude is stable.

To see the full pass-through mechanism, read our guide to what makes up the price at the pump. For the timing of these transmissions, see the oil price to pump price lag guide. For live retail prices across 100+ countries, use the fuel price explorer.

What is an oil refinery and how does oil refining work?

What is oil refinery? An oil refinery is an industrial facility that converts crude oil into usable petroleum products — petrol (gasoline), diesel, jet fuel, LPG, heating oil, bitumen and petrochemical feedstocks. How oil refining works can be summarised in three stages: first, atmospheric distillation separates crude into fractions by boiling point; second, conversion units (catalytic crackers, hydrocrackers) break heavy fractions into lighter, more valuable products; third, treating units remove sulphur and other impurities to meet fuel quality standards. The U.S. EIA refining explainer provides a detailed walkthrough of each stage, and the IEA's oil technology pages track global refinery capacity and utilisation trends.

The refinery's profitability — measured by the crack spread — directly affects pump prices. When refineries operate at high utilisation (above 90%), product prices rise relative to crude, widening margins and pushing retail prices up even if crude stays flat. Conversely, refinery overcapacity depresses margins and can bring pump prices down. The OPEC Annual Statistical Bulletin tracks global refinery capacity additions and closures, while the European Commission's weekly oil bulletin shows how refining margins feed through to European pump prices.

Frequently asked questions

What does an oil refinery do? An oil refinery converts crude oil into useful petroleum products: petrol, diesel, jet fuel, LPG, kerosene, heavy fuel oil, asphalt, and petrochemical feedstocks. It does this through atmospheric distillation (separating fractions by boiling point), conversion units (cracking heavy fractions into lighter, more valuable products), and treating units (removing sulfur and other impurities).: An oil refinery converts crude oil into useful petroleum products: petrol, diesel, jet fuel, LPG, kerosene, heavy fuel oil, asphalt, and petrochemical feedstocks. It does this through atmospheric distillation (separating fractions by boiling point), conversion units (cracking heavy fractions into lighter, more valuable products), and treating units (removing sulfur and other impurities).
What is refinery throughput? Refinery throughput is the volume of crude oil processed over a given period, typically measured in barrels per day (bpd) or tonnes per year. Global throughput is approximately 80–85 million bpd. A large modern refinery processes 300,000–600,000 bpd; small simple refineries may process 20,000–50,000 bpd.: Refinery throughput is the volume of crude oil processed over a given period, typically measured in barrels per day (bpd) or tonnes per year. Global throughput is approximately 80–85 million bpd. A large modern refinery processes 300,000–600,000 bpd; small simple refineries may process 20,000–50,000 bpd.
What is refinery margin and crack spread? The refinery margin (crack spread) is the difference between the value of refined products produced and the cost of the crude oil input. The 3-2-1 crack spread approximates it as: (2 × petrol price + 1 × diesel price − 3 × crude price) ÷ 3. Wide crack spreads indicate strong product demand relative to crude; narrow or negative spreads indicate weak refinery economics.: The refinery margin (crack spread) is the difference between the value of refined products produced and the cost of the crude oil input. The 3-2-1 crack spread approximates it as: (2 × petrol price + 1 × diesel price − 3 × crude price) ÷ 3. Wide crack spreads indicate strong product demand relative to crude; narrow or negative spreads indicate weak refinery economics.
What is a complex refinery vs a simple refinery? A simple (hydroskimming) refinery only performs distillation and basic treating — it requires light sweet crude and produces significant heavy fuel oil. A complex refinery adds conversion units (FCC, hydrocracker, coker) allowing it to process heavier, sourer crude and convert more of each barrel into high-value petrol and diesel. Complexity is measured by the Nelson Complexity Index (NCI): simple = 1–4, complex = 8–15+.: A simple (hydroskimming) refinery only performs distillation and basic treating — it requires light sweet crude and produces significant heavy fuel oil. A complex refinery adds conversion units (FCC, hydrocracker, coker) allowing it to process heavier, sourer crude and convert more of each barrel into high-value petrol and diesel. Complexity is measured by the Nelson Complexity Index (NCI): simple = 1–4, complex = 8–15+.