The spread between the cost of barrels of gasoline and crude oil - known as the 'crack spread' - has widened sharply
A surge in the "crack spread" is why gasoline prices have moved higher for longer than crude-oil prices since the U.S.-Iran war started.
Worried that gas prices at the pump will be rising quickly again now that Middle East hostilities have resumed - especially as they didn't fall that much after the last U.S.-Iran peace deal?
You should be, because companies are making more money refining crude oil into gasoline than they have in years.
Headlines about the price of oil have been hard to escape since the start of the U.S. and Israel's conflict with Iran in late February. Persistent back-and-forth on the status of oil tankers traveling through the Strait of Hormuz has led to short-lived periods of relief at the pump - but renewed U.S. air strikes in the region have pushed Brent crude futures (BRN00) to one-month highs, and while U.S. gas prices are back above $4 a gallon.
But the bigger problem for consumers, as well as for Wall Street, is that the spread between the cost of a barrel of gasoline and the barrel of oil needed to produce it - known among traders as the "crack spread" - have surpassed levels seen in 2022, when the Russia-Ukraine war and the post-COVID surge in demand pushed oil prices to 14-year highs.
The process works like this: Refiners take in raw crude oil (the price mostly referred to in headlines) and "crack" it into usable petroleum products. But just like crude is its own commodity, gasoline and diesel have their own trading prices as well. The profit that oil refineries make from converting crude into usable fuels is the "crack spread."
"Americans are probably going to spend more on gasoline as it relates to the price of oil in that gasoline," Patrick De Haan, head of petroleum analysis at GasBuddy, told MarketWatch.
And the widening of that spread could have implications beyond the price for a gallon of gas, as some fear it could put pressure on the stock market as well.
The crack is spreading
Before going into your car, crude oil must go through a refining process to be converted into gasoline and other products like diesel and jet fuel - and that's where the bottleneck has shown itself.
The current conflict between Russia and Ukraine that started in February 2022 has significantly damaged global refining capacity, with Russian crude runs falling to a 22-year low of 3.8 million barrels per day in June, according to a Truist report.
It also resulted in a Russian ban on diesel exports, limiting how much crude oil can actually be turned into fuel and reach the global market.
"When 1 in 9 barrels of diesel is produced in Russia, and suddenly they're banning exports, it's problematic," De Haan said.
The U.S.-Iran war has made matters even worse. Despite previous talks to de-escalate the conflict, the International Energy Agency said in its July oil-market report that Middle East export refineries have yet to restart.
That's a hit to gasoline markets that "you really can't make up for," De Haan said, and is particularly dire when U.S. refineries are already operating at nearly 97% capacity.
This has created what the IEA described as a "disconnect between apparently well-supplied crude-oil markets and tight product markets," where the raw crude is actually more plentiful than its usable output.
So if it seemed that gasoline prices rose higher and for longer than oil prices when the U.S.-Iran war started, and seemed to fall slower when there was hope for peace into late June, the chart below shows how that was absolutely the case.
Since hostilities resumed this month, the national average for gasoline has climbed back above $4 a gallon - the highest levels seen since it peaked above $4.50 a gallon in May.
Gasoline futures (RB00) have soared 22% off their June low to trade less than 10% below their May 18 closing high, while Brent crude futures have surged 24% off their recent low but are still 22% off their May 4 high, according to FactSet data.
And until the global refining bottleneck eases, the amount of crude oil that floods the market will have less of an impact on prices at the pump compared to when refining capacity was at normal levels. The reopening of the Strait of Hormuz in the Middle East isn't just important for the supply of raw crude itself, but is also essential for relieving global refining capacity.
"While most Americans are focused on oil flowing through the strait, some of the largest, newest [refineries] in the Middle East are also blocked from exporting gasoline, diesel and jet fuel to the market," De Haan said.
This will continue to affect the energy markets and gasoline prices for the foreseeable future - but it could also have an impact on the broader stock market DJIA SPX COMP, given the potential impact of a slowing economy resulting from consumers having less money to spend on nonenergy expenses.
As research firm GlobalData TS Lombard wrote in a note to clients last week, a slowing economy, combined with "the blistering rally in crack spreads," means equities could stall in the near term.
-Julian Torres
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 20, 2026 18:55 ET (22:55 GMT)
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