Profitable refining industry amid the U.S.-Israel-Iran conflict and the Russia-Ukraine war

On Wednesday, July 8, 2026, European diesel refining margins surged to a record high of over $60 per barrel after Russia announced a ban on diesel exports to alleviate a domestic fuel supply crisis triggered by Ukrainian drone strikes on Russian refineries. According to data compiled by Reuters, the premium of European gasoline prices over crude oil reached a four-year high of $41 per barrel. The last time the European gasoline premium over Brent crude reached such a level was in the summer of 2022—the early phase of the Russia-Ukraine war. Meanwhile, the NYMEX prompt 3-2-1 crack spread—a key indicator of refinery profitability—hit a record $64.58 per barrel on July 8. Refining margins continue to climb due to the export ban and refiners’ scramble to process newly arriving crude from the Middle East. In addition, fuel inventories across many countries—including the United States—are at multi-year lows, further pushing up refining margins and crude-oil price spreads. “European crack spreads have breached $60, while Brazil, Africa, and Turkey are competing fiercely to secure alternative supplies from India, the Middle East, and the U.S. Gulf Coast. U.S. diesel inventories are now near their lowest levels in five years,” said Sparta Commodities. Sparta’s analysts noted: “The supply relief traders had counted on may not materialize—Russian refined products are exhausted; Chinese exports remain uncertain; and renewed escalation in the Middle East adds new risks.” (II) Tightening global fuel markets and U.S. refinery utilization rate at 96.2% Global fuel markets have tightened due to the Iran conflict and the closure of the Strait of Hormuz. As a result, U.S. refinery utilization has remained near full capacity for several weeks, driving U.S. fuel exports to record highs. According to data from the U.S. Energy Information Administration (EIA), as of the latest reporting week (July 17, 2026), the average U.S. refinery utilization rate stood at 96.2%, up from 94.7% in the same period in 2025. The EIA’s latest Weekly Petroleum Status Report, released on Wednesday, July 22, 2026, showed that nationwide average refinery utilization edged above 96%. However, in the Midwest and Rocky Mountain regions—U.S. Defense Petroleum Administration Districts 2 and 4—refinery utilization rates have already hit 100%. Meanwhile, although commercial crude oil inventories rose slightly over the past week, they remain 6% below the five-year average for this time of year. Inventories at Cushing, Oklahoma, and in the Strategic Petroleum Reserve (SPR) have fallen to multi-year and forty-year lows, respectively. Depleted inventories, record exports, and fully loaded refineries have rendered the U.S. fuel market increasingly vulnerable to sudden disruptions—such as hurricanes or unplanned refinery outages. According to data compiled by the Financial Times, U.S. wholesale diesel futures prices rose 26% in July 2026 amid tightening fuel markets. With renewed escalation in the Middle East, Russia’s diesel export ban, and persistent declines in global fuel inventories, refining margins for both gasoline and diesel have soared to all-time highs. Moreover, Asian refiners—which had previously bet on a surge in Middle Eastern crude supply in August—are now facing delivery delays due to renewed regional tensions, potentially hindering their plans to ramp up crude processing in the coming weeks.

Key contributing factors, comparative analysis of impacts on gasoline versus crude oil production, and technical analysis of soaring U.S. diesel prices

Refineries optimize output across the entire slate of refined products—not just one single product. If export restrictions lower the cost of diesel production, refiners may adjust operating rates or output volumes, while foreign buyers must seek alternative sources to replace U.S.-produced diesel. Since gasoline and diesel originate from the same refining system, policies aimed at lowering the price of one product can also affect the economics and supply of the other. Oil markets are highly interconnected; seemingly simple policies, if implemented in isolation, may trigger secondary effects elsewhere in the system. Thus, it is not contradictory for the United States to be the world’s largest crude oil producer and a major exporter of refined products—even while experiencing abnormally high diesel prices. These phenomena reflect distinct operational realities across different segments of the petroleum supply chain. Inventories are critical The most pressing short-term issue today is inventory levels. Diesel markets typically maintain buffer stocks to absorb shocks—such as unexpected refinery shutdowns, surges in demand, or foreign supply disruptions. Yet this cushioning capacity has been substantially eroded, rendering markets far more vulnerable to disturbances that would otherwise be easily absorbed under normal conditions. The U.S. Energy Information Administration (EIA) projects that U.S. distillate fuel inventories will remain at unusually low levels through 2027, with seasonal pressures likely intensifying over the coming months. Refineries traditionally conduct maintenance in the fall; agricultural demand rises during harvest season; and heating oil demand begins climbing as temperatures drop. When inventories are already tight, these routine seasonal shifts exert disproportionately large upward pressure on prices. Even if the Iran conflict ends, markets may not normalize immediately. A de-escalation of geopolitical tensions could restore refinery output and cause sharp declines in oil and diesel prices—but global markets would still need to rebuild inventories depleted during the crisis. The EIA estimates that global oil inventories have already declined by approximately 400 million barrels this year and forecasts further reductions through the end of 2026. Replenishing these stocks requires sustained production surpluses over consumption for an extended period—meaning market fundamentals may remain tight even after geopolitical risk premiums dissipate, preventing the expected easing of market conditions. The real bottleneck For much of the past decade, discussions about U.S. energy security have centered on crude oil production. The shale revolution largely resolved this issue, enabling U.S. producers to supply abundant crude. Yet crude production represents only one link in a longer chain. Today’s diesel shortage reminds us that energy security also depends on refining capacity, inventories, pipelines, storage terminals, shipping routes, and a globally integrated refining network capable of transforming crude into the finished products consumers actually need. When any one of these links becomes constrained, record-breaking crude output alone cannot compensate for the shortfall. Lapierre concludes: The United States does not lack crude oil—but it does face a diesel supply shortage. These two conditions may persist side-by-side until global refining capacity recovers and inventories are rebuilt. This article is the eighth piece the author has written and published in 2026 specifically addressing the refined products and diesel markets. The sustained focus on refined products—especially diesel—underscores the severe supply-demand imbalance confronting international refined product markets in 2026.

US Refiners Have Run Harder in 2026 as Tight Diesel Supplies Boost Margins, EIA Says

2 days ago

The EIA reported US refiners maintained over 95% capacity utilization through September, the highest since 1998, driven by tight global diesel supplies and record prices.

reuters

2026-10-22

US Refiners Have Run Harder in 2026 as Tight Diesel Supplies Boost Margins, EIA Says

US Refiners Have Run Harder in 2026 as Tight Diesel Supplies Boost Margins, EIA Says

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