Though crude oil (BZ=F, CL=F) prices have ticked up as military activity between the US and Iran reignited, they remain far off their wartime highs.
But red flags are flashing in the refining market for critical products such as gasoline, diesel, and jet fuel. “Crack spreads,” or the price difference between crude oil and the refined product, keep growing.
That means despite the drop in oil prices, the “underlying physical reality is still much tighter,” Jordan Rizzuto, chief investment officer of GammaRoad Capital Partners, told Yahoo Finance.
“So the market pricing likely may have gotten ahead somewhat of the physical reality,” he added.
The closely watched 3-2-1 crack spread reached an all-time high on Wednesday. (Chart: Bloomberg) · Bloomberg.
The most closely watched spread is the “3-2-1 crack,” which estimates the theoretical margin gained from turning three barrels of crude oil into two barrels of gasoline (RB=F) and one barrel of distillate fuel. On Wednesday, that crucial measure pushed past $60 to reach an all-time high.
Saxo Bank head of commodities Ole Hansen attributes the tightness to two factors: strong seasonal demand for products such as gasoline and constrained availability.
As governments and companies drew down their jet fuel and gasoline stores during the Iran war, refineries struggled to obtain crude oil to replenish their inventories, driving prices higher. The dynamic has played out just as the US hit the summer vacation season, when demand for gasoline spikes.
Read more: How the Iran war drives up the cost of gas and groceries
Another critical factor is global refinery outages. Throughout the US-Iran conflict, at least nine major oil refineries in the Gulf region — including Bahrain, Kuwait, and Saudi Arabia — were damaged and shut down.
Additionally, in the four years of the Russia-Ukraine conflict, at least 18 refineries throughout Russia have been impacted.
Moscow announced on Wednesday that the country, which supplies roughly 10% of the world’s diesel, would be suspending diesel exports. That sent the 3-2-1 crack roaring upward to its all-time high.
Black smoke rises from a refinery where a fire broke out following a strike in Moscow on June 18, 2026. (Sefa Karacan/Anadolu via Getty Images) · Anadolu via Getty Images
Even outside of conflict zones, the global refining complex has seen a string of major incidents. Explosions and fires at Australia’s Geelong refinery in April have disrupted petrol production. In the US, a major explosion at the Valero Port Arthur refinery in Texas shuttered multiple units.
In the Middle East, “The key question is what share of the region’s 11.7 mbd of refining capacity is immediately restartable and what portion requires extensive repairs,” JPMorgan head of commodities research Natasha Kaneva wrote in a client note on Thursday.