U.S. refinery profit measures hit new records for a third consecutive trading session on Thursday as traders and industry participants reacted to dwindling domestic fuel inventories and heightened geopolitical tensions in the Middle East that threaten supply stability.
The widely followed 3-2-1 crack spread - a benchmark of U.S. refiner profitability - climbed by more than 2% to close at $69.66 a barrel. Traded on the New York Mercantile Exchange, the 3-2-1 spread is commonly used by refiners to hedge and lock in margins.
Refiners have benefited from a surge in international demand linked to the conflict involving Iran, with global buyers turning to U.S. fuel shipments and pushing U.S. exports to record levels. That export strength, however, has coincided with declines in domestic stockpiles and higher pump prices, creating pressure on household budgets during the peak summer driving season and presenting potential challenges for farmers in the Midwest.
Diesel has been the principal driver of refinery economics in recent months. Inventories of the industrial fuel have been tight for an extended period due to refinery closures in the western U.S., and disruptions to Middle Eastern exports connected to the Iran conflict tightened the market further. A temporary ban on Russian exports announced this month added to the global diesel shortage and intensified pressure on the market.
U.S. diesel stockpiles rose by 4.5 million barrels last week to climb to just over 102 million barrels, according to U.S. Energy Information Administration data released on Wednesday. Despite that weekly increase, diesel inventories were still nearly 11 million barrels below the level recorded on February 27 and roughly 8 million barrels under the five-year seasonal average.
At the same time, gasoline supplies are drawing growing concern. Many U.S. and global refiners have shifted production away from motor fuel to yield more diesel and jet fuel, a choice that has tightened the gasoline market. Since the end of February and the start of the Iran conflict, the supply-demand imbalance has pulled gasoline stockpiles down more sharply than diesel, contributing to sticker shock for U.S. motorists.
In the week ended July 10, U.S. gasoline inventories fell by more than 1.5 million barrels to 210.5 million barrels, the EIA data showed. That level is down by over 42 million barrels since the week ended February 27 and is about 14 million barrels below the five-year seasonal average. The motor fuel stockpile is at its lowest level for this time of year since 2012, the EIA data indicated.
Retail prices reflect those supply pressures. The U.S. national average for regular gasoline stood at $3.95 a gallon on Thursday, up nearly $0.80 from the same time a year earlier, data from GasBuddy showed. Prices had spiked as high as $4.56 per gallon in May amid disruptions to Middle East oil exports tied to a blockade of the Strait of Hormuz, the data showed.
Gasoline price increases are a visible inflationary indicator for consumers, and the surge has become a political flashpoint. U.S. President Donald Trump has publicly accused oil companies of price-gouging, though those accusations have been made without supporting evidence, according to reporting.
Industry analysts warn that motorists could see further pain before refiners pivot back toward maximizing gasoline output. "Encouraging refiners to revert to max-gasoline mode will require higher gasoline prices at retail and wholesale levels as well as increased margins relative to other fuels," London-based independent oil analyst John Kemp wrote to subscribers on Thursday.
Market measures of refining margins mirror that dynamic. The U.S. gasoline crack spread settled at about $59 a barrel on Thursday - a level not seen since June 2022 - while the diesel crack spread settled at over $91 a barrel, marking a record high.
Implications and market context
- Refiners are realizing historically strong margins as international demand and constrained supplies lift export volumes and push domestic inventories lower.
- Diesel tightness, reinforced by production choices and geopolitical disruptions, underpins much of the profitability gains; gasoline remains under pressure as refiners prioritize higher-value fuel yields.
- Consumers and sectors reliant on fuel - particularly motorists during the summer driving season and farmers in the U.S. Midwest - face higher costs and potential budget strain as inventories remain below seasonal norms.