US refiners are earning record margins on diesel, and their shares have soared. The administration is now trying to push pump prices down before the midterms. But its measures add little new supply, and Tuesday’s sell-off in refining stocks showed that the bigger threat to those margins is peace, not policy.
Key figures
- Diesel crack (New York Harbor diesel minus WTI crude): $113 a barrel on 20 October; the September average of $110.84 was a record, above the previous monthly high of $94.94 in October 2022
- 3-2-1 crack (refiners’ blended margin on gasoline and diesel): $46.94 on 20 October, after a September average of $68.23, the highest since 2006; the 2025 average was $23.49
- US retail diesel: $6.32 a gallon, against $3.63 a year ago
- WTI crude: about $98, up from $67 before the war began in late February; Brent about $110
- Tuesday 27 October: Valero −9.2%, Marathon Petroleum −7.4%, Phillips 66 −7.0%
- VanEck Oil Refiners ETF (CRAK): still up about 65% this year, against about 12% for the S&P 500
Crack spreads from EIA spot prices (Global Oil Shock calculation); stock moves at the close on 27 October 2026.
What a crack spread measures
A crack spread is the gap between the price of crude oil and the price of the fuels refined from it. It is the refiner’s gross margin per barrel, before running costs. The diesel crack compares diesel with crude barrel for barrel. The 3-2-1 crack assumes three barrels of crude make two of gasoline and one of diesel, which is closer to a typical US refinery’s output.
Why diesel margins blew out
Crude has not been plentiful: WTI is up roughly half since February. Refined products have simply been tighter still.
- The Iran war. Oil flows through the Strait of Hormuz averaged 11.7 million barrels a day in October, about 18% below pre-war levels (Benzinga via TradingView).
- Lost refining capacity elsewhere. Ukrainian drone strikes on Russian refineries led Moscow to restrict diesel exports, and refining in the Middle East has been disrupted (Fortune; Roll Call).
- Low stocks. US distillate inventories were about 9% below their five-year seasonal average in mid-October.
US refiners, running near capacity, have been the winners. Valero’s third-quarter refining margin nearly tripled to $39.24 a barrel, and it earned $6.8 billion.
What Washington has done, and how much supply it adds
| Measure | When | What it does to diesel supply |
|---|---|---|
| Dyed diesel on highways, federal tax deferred | Executive order 5 October; runs 1 October to 31 December | None. It changes who may use existing diesel, and the 24.4-cent tax is postponed, not cancelled (IRS) |
| G7 release of crude and diesel from strategic reserves | Agreed 2 October, over four months | Up to 100 million barrels, about 830,000 barrels a day if spread evenly (Euronews) |
| Russian diesel imports under a sanctions waiver | Announced 9 October; licence runs to April 2027 | 800,000 tonnes promised for October and November, about 75,000 to 124,000 barrels a day, plus 3 million tonnes “within a short period” (CFR; 24/7 Wall St.) |
| $8 billion Harvest Fuel Relief Program | Announced 19 October | None. One-time payments to farmers |
Two corrections to a common reading of these measures. First, fuel taxes sit after the refinery gate, so deferring them does not narrow the crack spread; economists quoted by Fortune expect the dyed-diesel order to make off-road diesel dearer for farmers, not cheaper. Second, the volumes are small next to the problem. Kpler puts the global diesel shortfall at about 1 million barrels a day, against world diesel demand of about 28 million.
The Russian deal is also contested. Ukraine’s President Zelenskyy called it a “weak” decision, the EU adopted its largest sanctions package on 12 October, and a bipartisan group of 12 members of the Senate Foreign Relations Committee urged the president to reverse it. Energy Secretary Chris Wright said on 27 October that more Russian cargoes are “quite possibly” on the way.
Tuesday’s sell-off: the threat is the war ending
Refining stocks had their worst day since April 2025 on Tuesday. The trigger was not lower oil: WTI fell only 1.8%. It was two headlines that pointed to more supply ahead: talks in Tehran involving Saudi Arabia, Turkey and Pakistan on ending the war, and the first tanker of Russian diesel heading for New York, due in early November.
That is the real risk for refiners. A reopened Strait of Hormuz and restarted refineries would do far more to narrow crack spreads than anything Washington can do before 3 November. Analysts are divided. Valero’s chief operating officer, Gary Simmons, called the recent drop in cracks headline-driven, said the Russian volumes were not significant, and expects margins to recover. Jefferies downgraded Valero and Marathon to Hold on 22 September on valuation grounds, and named demand destruction, an end to the war and political intervention as the main risks.
Winter cuts the other way. Heating-oil demand rises from November, inventories are already low, and the International Energy Agency expects diesel supplies to stay tight into the second half of 2027.
