U.S. oil refiners set to triple profits as Iran war squeezes fuel supply

U.S. oil refiners are poised to report their strongest quarterly profits since 2022 as the Iran war created a yawning gap between collapsing crude costs and stubbornly high fuel prices, with the benchmark 3-2-1 crack spread surging above $60 a barrel.

"The crude market normalized faster than the product market because stored barrels could be released quickly, but rebuilding diesel and gasoline inventories takes months," said PK Verleger, veteran energy analyst and president of PKVerleger LLC.

Brent crude has retreated to roughly $70 a barrel, about where it traded before the conflict erupted in late February and roughly $50 below wartime highs, after Middle Eastern exports jumped to more than 12 million barrels a day in June from less than 8 million in May, according to Kpler. Yet gasoline crack spreads have surged above $56 a barrel, and diesel's crack spread sits near $75, approaching levels last seen during the 2022 energy crisis that followed Russia's invasion of Ukraine.

The profit windfall is testing the Trump administration's relationship with Big Oil. Gasoline prices topped $4 a gallon nationally, and President Trump ordered the Justice Department to investigate potential price gouging, warning retailers to "drop your price for our great American people."

Exxon Mobil and Chevron are expected to post earnings that more than triple first-quarter levels, according to LSEG estimates, while Marathon Petroleum has already hit all-time highs as the market prices in expanded margins. European energy companies in the STOXX 600 are also set to report surging second-quarter profits, with growth estimates ticking upward as the Iran war has dragged on.

The disconnect between crude and products stems from two different recovery speeds. The crude market normalized almost overnight after the U.S. and Iran reached a ceasefire in mid-June, releasing hundreds of millions of barrels that had accumulated on tankers and in storage across the Gulf during the months-long closure of the Strait of Hormuz. But fuel markets are still working through depleted inventories and continuing refinery outages.

Ukraine has compounded the supply crisis by systematically targeting Russian refineries, storage terminals, and export infrastructure. Russian crude-processing rates have fallen to their lowest level in more than 21 years, averaging just 3.91 million barrels a day so far this month — more than 1.4 million barrels a day below the same period last year, according to Energy Aspects. Moscow has already restricted gasoline exports, imposed limits on diesel shipments, and acknowledged growing domestic shortages, with long lines forming at filling stations across parts of Russia.

The gap between crude and product prices is unlikely to persist indefinitely. If refiners continue running at high utilization to capture today's margins, crude demand rises with every additional barrel processed, gradually absorbing the temporary glut created by the Hormuz reopening. Producers across the Gulf are also unlikely to maintain steep discounts indefinitely if inventories normalize.

For now, U.S. refiners are sitting in a narrow window between two realities: a crude market working through a temporary surplus and a fuel market still recovering from months of disruption. History suggests that window does not stay open for long.

This article is for informational purposes only and does not constitute investment advice.